Interest Rates Linkages for G-6 Countries

Abstract

This study examines the long-run, medium-run and short run interest rates linkages among G-6 countries from 1991 till 2009. We use several conventional and unconventional techniques such as cointegration, codependence and wavelet comovement. Our results show that 19 out of 45 pairs are cointegrated and 11 of them have cointegration relation with a structural break. Existence of cointegration relation implies that only 19 pairs have common stochastic trend. On the other hand, using codependence, we find that 15 out of 19 pairs both have common stochastic trend and common cycles and 23 pairs have only common cycles. In total 38 out of 45 pairs have common cycles. In terms of the Rua (2010) wavelet comovement methodology, our results are in line with the argument that the comovement was dependent on the US at every frequency.