Interest rates in inflation-targeting countries
A new paper from the Reserve Bank of Australia examines whether long-term nominal interest rates in inflation-targeting economies are determined abroad.
The authors looked at data for Australia, Canada, New Zealand, Norway, Sweden, and the United Kingdom from the mid-1990s to 2007.
The paper finds that long-term nominal interest rates in small open economies are not determined abroad. The expectations hypothesis together with uncovered interest rate parity can account for much of the co-movement
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