RBA on why central banks tend towards Fed-set rate

- Central Banking staff
- 11 Jun 2008

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Research by the Reserve Bank of Australia has uncovered why long-term nominal interest rates in a number of inflation-targeting small open economies have tended to be highly correlated with those of the United States.

The research found that the expectations hypothesis together with uncovered interest rate parity can account for much of the co-movement of interest rates. This conclusion was reached by setting up and estimating a micro-founded two-block small open economy model to study the co

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