Çelik, Sadullah and Deniz, Pınar (2009): Does Fed Funds Target Interest Rate Lead Bank of England’s Bank Rate and European Central Bank’s Key Interest Rate?
Download (176kB) | Preview
It has been a long debate whether Fed Funds target interest rate (FFTR) has significant explanatory power on interest rates in other countries. In this paper, we analyze the effects of FFTR on Bank of England (BOE) bank rate and European Central Bank (ECB) key interest rate employing-the rather new and trustworthy technique of-Bounds testing developed by Pesaran (2001). Our empirical results are consistent with a priori expectations as BOE and ECB interest rates are highly dependent on FFTR. This finding can be interpreted as a clear signal of how globally tight-knit the world currencies have been. Moreover, it emphasizes the importance of US dollar as the world currency and rather serves as an argument against alternative global currency propositions.
|Item Type:||MPRA Paper|
|Original Title:||Does Fed Funds Target Interest Rate Lead Bank of England’s Bank Rate and European Central Bank’s Key Interest Rate?|
|Keywords:||Interest Rates, Monetary Policy, Bounds Testing|
|Subjects:||E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects
F - International Economics > F1 - Trade > F15 - Economic Integration
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F42 - International Policy Coordination and Transmission
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
|Depositing User:||PINAR DENIZ|
|Date Deposited:||21. Apr 2009 00:22|
|Last Modified:||16. Feb 2013 07:29|
Belke, A. and Gros, D. (2005), “Asymmetries in Transatlantic Monetary Policymaking: Does the ECB Follow the Fed?”, Journal of Common Market Studies, 43 (5).
Breuss, F. (2002), “Was ECB’s Monetary Policy optimal?”, Atlantic Economic Journal, Vol. 30 (3), pp. 298-319.
Clarida, R., Gali, J., Gertler, M., (1998), Monetary policy rules in practice: Some international evidence, European Economic Review, vol. 42, pp. 1033–1067.
Dickey, D.A. and Fuller W.A. (1979), “Distribution of the Estimators for Autoregressive Time Series with a Unit Root,” Journal of the American Statistical Association, vol.74, pp. 427–431.
Dickey, D.A. and Fuller W.A. (1981), “The Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root”, Econometrica, vol. 49, pp. 1057-1072.
Ehrmann, M., Fratzscher, M., (2003), “Interdependence between the Euro Area and the US: What Role for EMU?”, ECB Working Paper No 200.
Gerlach, S. and Schnabel, G. (2000) “The Taylor Rule and Interest Rates in the EMU Area”, Economics Letters, vol. 67, 165-171.
Monticini and Vaciago (2005), “Are Euro Interest Rates led by FED Announcements?“, Quaderni Istitute of Economics and Finance Working Paper.
Pesaran, M.H., Shin, Y. and Smith, R.J. (2001), “Bounds Testing Approaches to the Analysis of Level Relationships”, Journal of Applied Econometrics, 16, pp. 289-326.
Phillips, P.C.B. and Perron P. (1988), “Testing for a Unit Root in Time Series Regression,” Biometrika, vol.75, pp. 335–346.
Taylor, J.B. (2009), “The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong”, NBER working paper No.14631.
Ullrich, K. (2003) “A Comparison Between the Fed and the ECB: Taylor Rules”, ZEW Discussion Paper, 03-19, Mannheim.