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Interest Rate Volatility And Macroeconomic Dynamics: A Cross-Country Analysis

Michael Curran () and Adnan Velic ()

No 35, Villanova School of Business Department of Economics and Statistics Working Paper Series from Villanova School of Business Department of Economics and Statistics

Abstract: Employing relatively novel computational techniques, this paper examines the relation between real interest rate volatility and macroeconomic dynamics for a diverse panel of countries. Empirically, we find that interest rate volatility is quite high and persistent overall, with estimates exhibiting non-negligible heterogeneity across countries. Moreover, we highlight that volatility increases at higher interest rate levels, while it is negatively correlated with measures of macroeconomic performance such as output, consumption and investment. Our analysis demonstrates that the empirical facts can be generated by a DSGE model augmented with stochastic volatility shocks.

Keywords: interest rates; stochastic volatility; persistence; macroeconomic dynamics; general equilibrium models (search for similar items in EconPapers)
JEL-codes: C11 E13 E32 E43 E44 F41 (search for similar items in EconPapers)
Date: 2017-04
New Economics Papers: this item is included in nep-cmp, nep-dge, nep-mac and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:vil:papers:35

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