What Explains International Interest Rate Co‐Movement?
Abstract
ABSTRACT The international co‐movement of interest rates reflects correlated business‐cycle fluctuations, largely driven by demand shocks. Monetary policy in advanced economies follows domestic mandates—inflation and the output gap—and does not respond to foreign policy shocks. We derive this result from a Bayesian structural panel vector autoregression with informative priors, homogeneity restrictions on contemporaneous relations, a hierarchical Minnesota prior with cross‐sectional shrinkage, and a factor structure for structural shocks.
Fields of Study & Subjects
Monetary Policy and Economic Impact
Global Financial Crisis and Policies
Market Dynamics and Volatility
Publication details
- Journal / source
- Journal of Applied Econometrics
- Volume
- 41
- Issue
- 4
- Pages
- 343–359
- Publication date
- 12 February 2026
- Language
- EN