Do the Cross-Country Interest Rate Affect Real Macroeconomic Activities? An Empirical Analysis

Abstract

We attempt to understand the cross-country impact of interest rate on macroeconomic economic activities among a few major economies such as advanced economies (US, Japan, and Germany) and emerging economies (China, India, and Russia). Using Generalized Impulse Response analysis of VAR model, we find that advanced countries' interest rate affects economic activities relatively higher than emerging economies' interest rate. Contrastingly, among emerging economies, China's interest rate influences economic activities of all while interest rates of India and Russia have either marginal or no impact on others' aggregate economic activities, including advanced countries.