The relative impacts of Japanese and US interest rates on local interest rates in Australia and Singapore: a Granger causality test

Jordan Shan and Nick Pappas

Applied Financial Economics, 2000, vol. 10, issue 3, 291-298

Abstract: This study investigates the relative influences of Japanese and US interest rates upon the movement of local interest rates in two small and open APEC economies, Australia and Singapore. The Granger no-causality testing procedure developed by Toda and Yamamoto was applied, in a three-variable vector autoregression (VAR) model, to test the causality linkage between Japanese rates and local interest rates and between the US rate and local interest rates. Two distinct features stand out: first, the sensitivity of causality test results is tested under different lag structures along with the choice of optimal lags; second, the methodology developed by Toda and Yamamoto is expected to improve the standard F -statistics in the causality test process. The principle result emerging from the research indicates that the Japanese interest rate has not Grangercaused the movement of interest rates in Singapore but has done so in Australia.

Date: 2000
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DOI: 10.1080/096031000331699

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