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What drives the global official/policy interest rate?


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Ratti, R and Vespignani, JL 2015 , What drives the global official/policy interest rate?.

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We construct a GFAVAR model with newly released global data from the Federal Reserve
Bank of Dallas to investigate the drivers of official/policy interest rate. We find that 62% of
movement in global official/policy interest rates is attributed to changes in global monetary
aggregates (21%), oil prices (18%), global output (15%) and global prices (8%). Global
official/policy interest rates respond significantly to increases in global output and prices and
oil prices. Increases in global policy interest rates are associated with reductions in global
prices and global output. The response in official/policy interest rate for the emerging
countries is more to global inflation, for the advanced countries (excluding the U.S.) is more
to global output, and for the U.S. is to both global output and inflation.

Item Type: Report (Discussion Paper)
Authors/Creators:Ratti, R and Vespignani, JL
Keywords: Global interest rate, global monetary aggregates, oil prices, GFAVAR
Publisher: University of Tasmania
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