Register  |  Login  |  Inquiries  |  Sitemap |  
Advanced Search
Journal of Economic Integration 2004 March;19(1) :192-303.
DOI: https://doi.org/10.11130/jei.2004.19.1.192
Decomposing Interest Differentials: An International Borrowing and Lending Approach

Anthony J. Makin 

University of Queensland
Copyright ©2004 Journal of Economic Integration
ABSTRACT
This paper proposes a new economy-wide framework for decomposing international interest differentials based on aggregate borrowing and lending behaviour in economies whose domestic capital markets are highly globally integrated. Using macroeconomic rather than microeconomic concepts, this alternative approach demonstrates how key inter-relationships involving relative inflation levels and exchange rate expectations govern "average" domestic and foreign interest differentials. It also contributes by identifying different kinds of risk premia that arise due to economy-wide factors such as the level of foreign debt and country and political factors. Unlike standard interest parity approaches, based simply on arbitrage of financial asset returns, it shows that changing exchange rate expectations influence international interest differentials through both excess domestic borrowing and foreign lending behaviour.
Keywords: Interest parity | Loanable funds | Risk
TOOLS
PDF Links  PDF Links
Full text via DOI  Full text via DOI
Download Citation  Download Citation
  Print
Share:      
METRICS
1
Crossref
0
Scopus
5,178
View
23
Download
Editorial Office
Center for Economic Integration, Sejong University, 209, Neungdong-Ro, Gwangjin-Gu,
Seoul, 05006, Korea
TEL : +82-2-3408-3338    FAX : +82-2-6935-2492   E-mail : editorial.office@e-jei.org
Browse Articles |  Current Issue |  For Authors and Reviewers |  About
Copyright© by Center for Economic Integration.      Developed in M2PI