World Interest Rates and Investment, Volume 37, Issue 10
In a world of integrated capital markets, the price of credit - which I measure by short-term expected real interest rates - is determined to equate the world aggregate of investment demand to the world aggregate of desired national saving. I implement this approach empirically by approximating the world by aggregates for ten major developed countries. For the period since 1959, the common component of expected real interest rates for these countries relates especially to developments on world stock and oil markets and secondarily, to world monetary and fiscal policies.
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capital market consumption to GDP country's monetary growth crude oil crude-oil consumption D(OILCY)j D(OILCY)t_j data through 1990 desired national saving desired saving rate determined to equate DMt_j error term estimated coefficient expected real interest expenditures on crude-oil fiscal policies fiscal variables Forecasts form of equation G/Y)j t_j G/Y)t_j GDP-weighted averages government purchases growth rate individual country's monetary insignificant investment demand investment equations lagged monetary and fiscal NBER nominal interest rates oil consumption oil shock oil variable OILCY OILCYt own-country variables p-value Persian Gulf RATES AND INVESTMENT ratio of real RDEBTY RDEBTYt RDEBTYt_p RDEFYA real GDP real interest rate real stock prices regression remains significantly sample period saving equation serial correlation significantly negative effect Simulated Effect standard deviation standard errors stock and oil stock returns stock-return variable STOCKj t_j STOCKt_j United Kingdom world aggregate world and own-country world investment ratio world monetary growth world real interest world variables