Correlations Between Real Interest Rates and Output in a Dynamic International Model: Evidence from G-7 Countries

Author/Editor:

Jahanara Zaman

Publication Date:

December 1, 1998

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper examines the extent to which a dynamic international general equilibrium model can account for observed movements in real interest rates and interest rate differentials. Using data for Group of Seven, the study finds that measured real interest rates are countercyclical in a single country and that the contemporaneous cross-correlations between international real interest differentials and output growth spreads are negative. Predictions of the baseline model are, however, inconsistent with the data. Extending the benchmark model to include habit persistence in consumption improves the match between theory and data.

Series:

Working Paper No. 1998/179

Subject:

English

Publication Date:

December 1, 1998

ISBN/ISSN:

9781451859003/1018-5941

Stock No:

WPIEA1791998

Pages:

43

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