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—inflation and the output gap—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.