Dynamics and Synchronization of Global Equilibrium Interest Rates
With the COVID-19 pandemic, the intense debate about secular stagnation will become even more important. Empirical estimates of equilibrium real interest rates are so far mostly limited to advanced economies, since no statistical procedure suitable...
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World Bank, Washington, DC
2020
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| Online Access: | http://documents.worldbank.org/curated/en/897441607366178761/Dynamics-and-Synchronization-of-Global-Equilibrium-Interest-Rates http://hdl.handle.net/10986/34911 |
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okr-10986-349112022-09-20T00:10:41Z Dynamics and Synchronization of Global Equilibrium Interest Rates Beyer, Robert C.M. Milivojevic, Lazar INTEREST RATE STOCHASTIC VOLATILITY BAYESIAN INFERENCE SYNCHRONIZATION EQUILIBRIUM BUSINESS CYCLE TRANSMISSION GLOBAL FINANCIAL CRISIS With the COVID-19 pandemic, the intense debate about secular stagnation will become even more important. Empirical estimates of equilibrium real interest rates are so far mostly limited to advanced economies, since no statistical procedure suitable for a large set of countries is available. This is surprising, as equilibrium rates have strong policy implications in emerging markets and developing economies as well; current estimates of the global equilibrium rate rely on only a few countries; and estimates for a more diverse set of countries can improve understanding of the drivers. This paper proposes a model and estimation strategy that decompose ex ante real interest rates into a permanent and transitory component even with short samples and high volatility. This is done with an unobserved component local level stochastic volatility model, which is used to estimate equilibrium rates for 50 countries with Bayesian methods. Equilibrium rates were lower in emerging markets and developing economies than in advanced economies in the 1980s, similar in the 1990s, and have been higher since 2000. In line with economic integration and rising global capital markets, synchronization has been rising over time and is higher among advanced economies. Equilibrium rates of countries with stronger trade linkages and similar demographic and economic trends are more synchronized. 2020-12-10T15:12:26Z 2020-12-10T15:12:26Z 2020-12 Working Paper http://documents.worldbank.org/curated/en/897441607366178761/Dynamics-and-Synchronization-of-Global-Equilibrium-Interest-Rates http://hdl.handle.net/10986/34911 English Policy Research Working Paper;No. 9489 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper |
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Digital Repository |
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Foreign Institution |
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Digital Repositories |
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World Bank Open Knowledge Repository |
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World Bank |
| language |
English |
| topic |
INTEREST RATE STOCHASTIC VOLATILITY BAYESIAN INFERENCE SYNCHRONIZATION EQUILIBRIUM BUSINESS CYCLE TRANSMISSION GLOBAL FINANCIAL CRISIS |
| spellingShingle |
INTEREST RATE STOCHASTIC VOLATILITY BAYESIAN INFERENCE SYNCHRONIZATION EQUILIBRIUM BUSINESS CYCLE TRANSMISSION GLOBAL FINANCIAL CRISIS Beyer, Robert C.M. Milivojevic, Lazar Dynamics and Synchronization of Global Equilibrium Interest Rates |
| relation |
Policy Research Working Paper;No. 9489 |
| description |
With the COVID-19 pandemic, the intense
debate about secular stagnation will become even more
important. Empirical estimates of equilibrium real interest
rates are so far mostly limited to advanced economies, since
no statistical procedure suitable for a large set of
countries is available. This is surprising, as equilibrium
rates have strong policy implications in emerging markets
and developing economies as well; current estimates of the
global equilibrium rate rely on only a few countries; and
estimates for a more diverse set of countries can improve
understanding of the drivers. This paper proposes a model
and estimation strategy that decompose ex ante real interest
rates into a permanent and transitory component even with
short samples and high volatility. This is done with an
unobserved component local level stochastic volatility
model, which is used to estimate equilibrium rates for 50
countries with Bayesian methods. Equilibrium rates were
lower in emerging markets and developing economies than in
advanced economies in the 1980s, similar in the 1990s, and
have been higher since 2000. In line with economic
integration and rising global capital markets,
synchronization has been rising over time and is higher
among advanced economies. Equilibrium rates of countries
with stronger trade linkages and similar demographic and
economic trends are more synchronized. |
| format |
Working Paper |
| author |
Beyer, Robert C.M. Milivojevic, Lazar |
| author_facet |
Beyer, Robert C.M. Milivojevic, Lazar |
| author_sort |
Beyer, Robert C.M. |
| title |
Dynamics and Synchronization of Global Equilibrium Interest Rates |
| title_short |
Dynamics and Synchronization of Global Equilibrium Interest Rates |
| title_full |
Dynamics and Synchronization of Global Equilibrium Interest Rates |
| title_fullStr |
Dynamics and Synchronization of Global Equilibrium Interest Rates |
| title_full_unstemmed |
Dynamics and Synchronization of Global Equilibrium Interest Rates |
| title_sort |
dynamics and synchronization of global equilibrium interest rates |
| publisher |
World Bank, Washington, DC |
| publishDate |
2020 |
| url |
http://documents.worldbank.org/curated/en/897441607366178761/Dynamics-and-Synchronization-of-Global-Equilibrium-Interest-Rates http://hdl.handle.net/10986/34911 |
| _version_ |
1764481916998778880 |