Camehl, A. and von Schweinitz, G. (2026). What Explains International Interest Rate Co-Movement? Journal of Applied Econometrics, 41(4):343--359.
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Affiliated author
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Publication year2026
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JournalJournal of Applied Econometrics
The international co-movement of interest rates reflects correlated business-cycle fluctuations, largely driven by demand shocks. Monetary policy in advanced economies follows domestic mandates{\textemdash}inflation and the output gap{\textemdash}and does not respond to foreign policy shocks. We derive this result from a Bayesian structural panel vector autoregression with informative priors, homogeneity restrictions on contemporaneous relations, a hierarchical Minnesota prior with cross-sectional shrinkage, and a factor structure for structural shocks.