International interest rates linkages: Evidence from OECD countries

Abstract

Real interest rates are an important channel for the transmission of international financial impulses. Real interest rates are influenced by domestic economic developments as well as the movements of real rates in dominant economies. With a greater integration of global financial markets the effect of the latter has become more important. The empirical results of this study indicate that real interest rates among five OECD countries are cointegrated. Furthermore, the empirical results of the study show a significant and positive response of rates in smaller economies to a shock of real rates in the dominant economies. However, dominant economies' real rates are not significantly responsive to a shock of rates in smaller economies.