Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/275742 
Year of Publication: 
2023
Series/Report no.: 
IWH Discussion Papers No. 3/2023
Version Description: 
This version: September 4, 2023
Publisher: 
Halle Institute for Economic Research (IWH), Halle (Saale)
Abstract: 
We show that global supply and demand shocks are important drivers of interest rate co-movement across seven advanced economies. Beyond that, local structural shocks transmit internationally via aggregate demand channels, and central banks react predominantly to domestic macroeconomic developments: unexpected monetary policy tightening decreases most foreign interest rates, while expansionary local supply and demand shocks increase them. To disentangle determinants of international interest rate co-movement, we use a Bayesian structural panel vector autoregressive model accounting for latent global supply and demand shocks. We identify country-specific structural shocks via informative prior distributions based on a standard theoretical multi-country open economy model.
Subjects: 
informative priors
panel vector autoregressions
spillovers
structural vector autoregressions
JEL: 
C11
C30
E52
F42
Document Type: 
Working Paper

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