Document Type

Article

Rights

Available under a Creative Commons Attribution Non-Commercial Share Alike 4.0 International Licence

Disciplines

Economics, Business and Management.

Publication Details

Review of International Economics - Wiley Online Library

Abstract

We examine the relation between real interest rate volatility and aggregate fluctuations for a diverse sample of countries. Compiling a new dataset including emerging and advanced countries, the substantial variation in our data yields novel results: (a) stochastic volatility outperforms Markovswitching in representing interest rates, (b) some advanced economies can be more volatile than emerging markets, and (c) creditors take on more debt following volatility shocks. We show how an equilibrium business cycle model with uncertainty shocks can generate these facts. Sample heterogeneity produces significant parameter differences, playing an important role in distinguishing the effects of volatility shocks.

DOI

https://doi.org/10.1111/roie.12477

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