Measuring Global Interest Rate Comovements with Implications for Monetary Policy Interdependence

Renee Fry-McKibbin, Kate McKinnon and Vance Martin

RBA Annual Conference Papers from Reserve Bank of Australia

Abstract: A general measure of the strength of U.S. and local interest rate comovement is developed to identify changes in monetary policy interdependence between January 1999 and May 2020. Entropy theory captures comovements through second-order comoments and higher-order comoments of coskewness, cokurtosis and covolatility. The sample contains monthly short-term shadow rates, with local rates for Australia, Canada, Europe, Japan, New Zealand, Switzerland, and the U.K. Monetary policy overall became more interdependent during the Global Financial Crisis but progressively more independent after adopting unconventional monetary policy by central banks. Measures using second-order comoments do not entirely capture changes in interest rate interdependence.

Keywords: entropy; generalised exponential family; higher-order comoment; decomposition; independence testing; zero-lower bound (search for similar items in EconPapers)
Date: 2022-06, Revised 2022-12
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mon
Note: Paper presented at the RBA's annual conference 'The Causes, Challenges and Consequences of the Low Interest Rate Environment', Sydney, 28–29 June 2022.
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Persistent link: https://EconPapers.repec.org/RePEc:rba:rbaacp:acp2022-07

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