Does Fed Funds Target Interest Rate Lead Bank of England’s Bank Rate and European Central Bank’s Key Interest Rate?

Sadullah Çelik () and Pınar Deniz ()

MPRA Paper from University Library of Munich, Germany

Abstract: It has been a long debate whether Fed Funds target interest rate (FFTR) has significant explanatory power on interest rates in other countries. In this paper, we analyze the effects of FFTR on Bank of England (BOE) bank rate and European Central Bank (ECB) key interest rate employing-the rather new and trustworthy technique of-Bounds testing developed by Pesaran (2001). Our empirical results are consistent with a priori expectations as BOE and ECB interest rates are highly dependent on FFTR. This finding can be interpreted as a clear signal of how globally tight-knit the world currencies have been. Moreover, it emphasizes the importance of US dollar as the world currency and rather serves as an argument against alternative global currency propositions.

Keywords: Interest Rates; Monetary Policy; Bounds Testing (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 F15 F41 F42 (search for similar items in EconPapers)
Date: 2009-03
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:14750

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