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Interest rates and foreign spillovers

Roberto A. De Santis and Srečko Zimic

European Economic Review, 2022, vol. 144, issue C

Abstract: We show that US interest rates are the main source of spillovers globally and are less exposed to foreign shocks. European rates were insulated from foreign spillovers during the sovereign debt crisis and the ECB’s more aggressive monetary policies. The US 2-year interest rate is driven by US monetary policy and demand shocks, which in turn spillover to foreign interest rates. We propose a novel approach within a SVAR to identify the country-source and the type of shocks, where countries are treated symmetrically, by using magnitude and sign restrictions with the impact matrix constrained within bounds resulting from event-study regressions.

Keywords: Interest rates; Spillovers; Event-study; Magnitude restrictions; Sign restrictions; SVAR (search for similar items in EconPapers)
JEL-codes: C3 F3 G1 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.euroecorev.2022.104043

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European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

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