INTERNATIONAL LINKAGES BETWEEN SHORT-TERM REAL INTEREST-RATES

Whereas previous studies have focused on the causal relation between n ominal interest rates, this paper examines causal relationships betwee n real tares for the United States and six other countries. Based on e vidence from our full sample we find that U.S. and foreign interest ra tes are not highly informative for one another. This would suggest tha t even if the United States is regarded as a large player in internati onal financial markets this does not necessarily translate into the tr ansmission of U.S. real interest rates to other countries. However, an examination of various sub-periods of our sample reveals that this co nclusion may be sensitive to the U.S. monetary policy regime. We also report results for linkages between European countries which indicate that Germany provides some information on real interest rates in Franc e and the United Kingdom, but not in Italy. An analysis of various sub -periods for the European countries show that the result for France is not robust, with German rates having an impact only in the first peri od through March 1983. This latter evidence does not provide strong su pport for the hypothesis that Germany's monetary policy plays a domina nt role in the European Monetary System. In general, we would argue th at domestic factors play a prominent role in determining real interest rates, quite independently from the influence of intel est rates from abroad.