Monetary Hegemony and its Implications for Small, Open Economies

Gylfi Zoega ()
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Gylfi Zoega: University of Iceland

Atlantic Economic Journal, 2020, vol. 48, issue 4, No 4, 446 pages

Abstract: Abstract The paper uses historical data on interest rates from 1920 to 2016 to explore whether a world rate of interest exists and whether a monetary hegemon affects it. The first principal component of long-term interest rates accounts for 75% of the variation in a matrix of 17 countries and proxies for the world rate of interest. The U.S. played the role of a hegemon, influencing long-term bond rates. After the introduction of the euro in 1999, interest rates in most European countries followed German interest rates but German rates followed U.S. rates even more than before the introduction of the euro. In two countries on the northern periphery, Denmark and Sweden, interest rates shadow German rates and the low rates have contributed to rising house prices and rising mortgage debt. Independent monetary policy calls for targeted controls on capital flows.

Keywords: World interest rate; Monetary hegemony; Interest rates; Monetary independence; E43; E44; E52 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11293-020-09694-y

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