The Impact of Foreign Interest Rates on the Economy: The Role of the Exchange Rate Regime

Julian di Giovanni and Jay Shambaugh

No 13467, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: It is often argued that many economies are affected by conditions in foreign countries. This paper explores the connection between interest rates in major industrial countries and annual real output growth in other countries. The results show that high foreign interest rates have a contractionary effect on annual real GDP growth in the domestic economy, but that this effect is centered on countries with fixed exchange rates. The paper then examines the potential channels through which major-country interest rates affect other economies. The effect of foreign interest rates on domestic interest rates is the most likely channel when compared with other possibilities, such as a trade effect.

JEL-codes: F3 F4 (search for similar items in EconPapers)
Date: 2007-10
New Economics Papers: this item is included in nep-cba, nep-ifn and nep-mon
Note: IFM
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Citations: View citations in EconPapers (9)

Published as di Giovanni, Julian & Shambaugh, Jay C., 2008. "The impact of foreign interest rates on the economy: The role of the exchange rate regime," Journal of International Economics, Elsevier, vol. 74(2), pages 341-361, March.

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Related works:
Journal Article: The impact of foreign interest rates on the economy: The role of the exchange rate regime (2008)
Working Paper: The Impact of Foreign Interest Rates on the Economy: The Role of the Exchange Rate Regime (2006)
Working Paper: The Impact of Foreign Interest Rateson the Economy: The Role of the Exchange Rate Regime (2006)
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