Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/230425 
Year of Publication: 
2018
Series/Report no.: 
Cardiff Economics Working Papers No. E2018/19
Publisher: 
Cardiff University, Cardiff Business School, Cardiff
Abstract: 
Long-term interest rates of small open economies correlate strongly with the US long-term rate. Can central banks in those countries decouple from the US? An estimated DSGE model for the UK (vis-`a-vis the US) establishes three structural empirical results. (1) Comovement arises due to nominal fluctuations, not through real rates or term premia. (2) The cause of comovement is the central bank of the small open economy accommodating foreign inflation trends, rather than systematically curbing them. (3) Small open economies may find themselves much more affected by changes in US inflation trends than the US itself.
Subjects: 
DSGE Model
Small Open Economy
Yield Curve
Long-Term Interest Rates
Term Premia
Comovement
JEL: 
E43
E44
F30
F44
F65
G15
Document Type: 
Working Paper

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