Volatility linkages among interest rates: implications for global monetary policy

Abstract

This paper explores the effects of a greater integration among major capital markets from 1984 to 2001 on the conduct of global monetary policy. The methodological design is a multivariate vector moving average GARCH model which is suitable for examining the nature of the volatility spillover mechanism of long-term interest rates across markets. The empirical findings indicate that there have been stronger linkages among major bond markets since 1990 at the volatility level. The more synchronized behaviour of long-term interest rates across countries is evidenced by the speed and persistence with which disturbances in a particular market transmit to other markets. Such volatile behaviour affects the conduct of global monetary policy which now has to be done interactively among the world's major players.

Output Volatility and Its Transmission in Transition Economies: Implications for European Integration

“…Each output growth series is evaluated as an AR(1) process as in Equation (3a), and each GARCH(1,1) process includes the other countries' error terms and variance series as in Equation (3b). Per Laopodis (2001Laopodis ( , 2002Laopodis ( , 2003, the constant conditional correlations are estimated in Equation (3c). Diagonal VECH is used for the estimation.…”

Can fiscal austerity be expansionary in present-day Europe? The lessons from Sweden

“…In the 1990s, there was a general convergence of long-term real interest rates among the OECD countries, a development that was only temporarily interrupted in the middle of the decade (Laopodis 2002;Brook 2003;Upper and Worms 2003;Afonso and Rault 2010). Thus, falling interest-rate differentials vis-à-vis Germany was not unique for Sweden, which downscales the impact of domestic factors, including the budget consolidation policy.…”

Volatility spillovers and dynamic correlation in European bond markets

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