چه کاری می تواند ما در مورد هماهنگ سازی سیاست های پولی و وابستگی متقابل در طول بحران مالی جهانی2007-2009 بگویید؟

We investigate the synchronization and nonlinear adjustment dynamics of short-term interest rates for France, the UK and the US using the bi-directional feedback measures proposed by Geweke (1982) and appropriate smooth transition error-correction models (STECM). We find evidence to support the increasing synchronization of these rates over the period 2005–2009 as well as of their lead–lag causal interactions. Moreover, short-term interest rates converge towards a common long-run equilibrium in a nonlinear manner and their time dynamics exhibit regime-switching behavior. As far as the underlying types of monetary policies conducted by the world’s leading central banks are concerned, our empirical evidence thus reveals strong interdependence, but only some degree of synchronization.

It is now common that financial stability constitutes a key factor for a healthy and successful economy since in such context depositors and investors have confidence that the financial system is safe and stable with a high degree of resilience to internal and external shocks. Further, failures in particular areas cannot spread to other sectors or to the whole economy. Today, preserving financial stability is widely viewed as a primary role of central banks as monetary policy and the stability of financial systems are closely interlinked.1 A large number of previous studies documented that changes in target interest rates have had a significant impact on financial market conditions and stability, through affecting equity prices and macroeconomic fundamentals such as inflation and exchange rate equilibriums (e.g., Rigobon and Sack, 2003, Bernanke and Kuttner, 2005, Chen, 2007, Ioannidis and Kontonikas, 2007 and Di Giorgio and Rotondi, 2011). To the extent that the financial system performs the function of efficiently allocating available funds to the most productive investments for individuals and corporations, the rise of financial instability may lead stock markets to collapse and imply harmful repercussions on the performance of both financial and real sectors. Therefore, if central banks fail to control the growing financial instability, their policies may not be properly applied due to ineffective responses from financial markets and a pervasive lack of confidence by investors. The role of central banks in the regulation of global financial stability has been however under close scrutiny in the aftermath of the recent financial crisis that originated with the massive failures of the subprime mortgage markets in the US and quickly spilled over to other countries. Besides the efforts of other authorities such as governments and international regulatory institutions, it is generally believed that policy interventions by central banks are essential to regulate financial stability and to reduce the negative impact of the financial crisis. The majority of researchers and policymakers share a common view that more central bank coordination would help the global economy to recover from the financial crisis. Moreover, there are at least three factors underpinning their coordinated actions. First, monetary policy coordination helps remedying an operational asymmetry. That is, the current financial crisis is a global matter as a result of financial liberalization and globalization of capital markets, while policy coordination of central banks at international level appears to be visibly weak. During the recent fifth central banking conference of the European Central Bank (ECB), the Chairman of the US Federal Reserve System (US Fed), Ben Bernanke, pointed out that although the merits of coordinated monetary policies among central banks have been discussed and approved for decades, such coordination has been quite rare in practice. The unique example over the last years concerns the joint announcement of interest rate cuts by the US Fed with five other leading central banks on October 8, 2008, in an effort to calm down the financial market turmoil and to combat the significant deterioration of the main economic performance indicators (Table 1). Second, the recent episode of financial instability and crisis indicate that the hypothesis of efficient capital markets, the purpose of self-regulated markets and the resilience of free markets appear implausible. More market discipline, developed in a coordinated framework by central banks, thus seems necessary to deal with global economic challenges. Finally, as noted by many economists and banking experts, the current architecture of the global financial system is subject to much criticism due to the significant deficiencies and illegal actions carried out by major international financial institutions. That is, during the global financial crisis of 2007–2009, the International Monetary Fund demonstrated major failures in fostering global monetary cooperation and securing global financial stability, while the Bank of International Settlement failed to provide a prudential framework for macroeconomic policies. With the principal aim of restoring investor confidence and reducing the crisis impact on the real economy, and on financial and banking sectors, the central banks have been emerging as key actors in global regulation tasks by actively assuming their role as liquidity providers of last resort for the financial markets. They are however aware of the difficulties in global crisis monitoring without effective coordination with other central banks elsewhere.The context of the global financial crisis and economic meltdown has created a natural framework for investigating the issue of central bank policy coordination. We propose to draw inferences about the synchronization and interdependence of monetary policies conducted by leading central banks by analyzing the information content of short-term interest rates for France, the UK and the US over the recent periods.2 Our choice is particularly motivated by the fact that short-term interest rates on economy-wide markets represent an important aggregate source of information to economic agents and reasonably reflect market expectations about the underlying types of monetary policies that influence economic activity. The study is thus of paramount important for understanding the way each central bank conducts its monetary policy with its peers. For instance, the timeliness of successive policy-rate changes presented in Table 1 witness some degree of policy synchronization and interdependence among the three central banks under consideration.3 Note however that we are not concerned by the timing of successive policy-rate changes and the probability that a central bank changes its target rate given a modification of another bank’s policy rate, even though these issues are also of great interest to investors and policymakers (Scotti, 2006 and Douglas and Kolar, 2009). At the empirical level, we first examine whether the time variation of short-term interest rates of France, the UK and the US is synchronous over the study period. We directly infer the synchronization dynamics of these rates from estimating the Geweke (1982)’s feedback measures which can be seen ultimately as a cardinal indicator of the degree of monetary market comovement. We then use nonlinear univariate and trivariate cointegration techniques, based on vector error-correction model (VECM) and smooth transition error-correction model (STECM), to investigate the linkages and adjustment dynamics of the short-term interest rates led by innovations in target rates announced by central banks. Our proposed framework enables to capture the lead–lag effects and dynamic interdependence among interest rate series. The regime-switching behavior in the adjustment process of interest rates to their long-run equilibrium is also allowed by explicitly specifying a transition function with respect to a certain threshold. In theory, modeling nonlinearities in the interest rate dynamics is mainly motivated by heterogeneous transaction costs and information asymmetries in international markets, nonlinear shock transmissions, and structural break behavior of interest rates (Anderson, 1997, Liu, 2001 and Favero and Giavazzi, 2002).4 Our study is thus broadly related to the sunk cost hysteresis approach to investment in different currencies.5 Indeed, the existence of sunk costs implies that a country’s current interest rate depends on its past trajectories and, more interestingly, that transitory important shocks to monetary policy may lead to sudden regime change in the dynamic behavior of interest rates. Sunk costs associated with investment in different currencies thus produce hysteresis in interest rate responses. Overall, our test of monetary policy synchronization reveals a high percentage of contemporaneous association (feedback) among the 3-month interbank offered interest rates of respective countries over the period from December 31, 2004 through March 30, 2010. We also find significant evidence of causal interactions among these rates. Finally, short-term interest rates converge towards a common long-run equilibrium and their adjustment process is typically nonlinear and subject to regime shifts. These findings, consistent with those reported in Scotti (2006) for the US Fed and ECB pair, may be suggestive of the fact that the European, UK and US central banks have recently adopted similar policies. However, our results are more insightful as they provide some evidence of nonlinear, time-varying and threshold adjustment behavior of various interest rates. The rest of the article is structured as follows. We present, in Section 2, our econometric approach and show how it is applied to reproduce the interest rate dynamics. Section 3 describes the data used and discusses the main empirical results. Section 4 concludes the paper.

This article examines the synchronization and interdependence of short-term interest rates for France, the UK and the US within the context of the recent global financial crisis and economic meltdown. To the extent that central bankers have had to coordinate more to deal with the crisis issues and ultimately to make policy decisions on interest rates that would reduce financial instability and restore investors’ confidence, our study may provide some guidelines for monetary policy feedback rules. Empirically, we employ Geweke (1982)’s feedback measures to test for the synchronization hypothesis, and develop a threshold cointegration framework to investigate both short and long-run relationships between the variables of interest. The main advantage of the proposed approach is its suitability for capturing any form of asymmetry, nonlinearity and structural changes in interest rate interdependence and adjustment dynamics, that may be caused by currency-investment sunk costs and increasing crisis-related uncertainty. We find evidence to support the increasing monetary policy synchronization and strong nonlinear interactions between the three short-term interest rates considered. Indeed, these interest rates converge towards a common long-run equilibrium. Moreover, their dynamic adjustment process is typically nonlinear and obeys two separate regimes. In the central regime which is referred to as the band of inaction, interest rate deviations are small, and may be away from the equilibrium, uncorrected, and near unit root. Thus, a country’s central bank may not react immediately to changes in foreign interest rate if the deviation of the domestic short-term interest rate only deviates slightly from its long-run equilibrium with the foreign one. This hysteresis in interest rates, amplified the crisis-related uncertainty, can be potentially explained by the sunk cost mechanism which prevents the said central bank from following its foreign counterpart and thus widens the band of inaction. The resulting policy relationship between two central banks is weak. However, when the deviations are large and exceed a certain underlying threshold, the upper regime or synchronization regime is activated and central banks have tendency to adjust their policy rates so that the short-term interest rates are mean-reverting to their long-run relationship. Similar to the regime of segmentation, the return to equilibrium of short-term interest rates within the upper regime of synchronization may also take time because of irreversible costs and the uncertainty associated with policy actions of central banks. We also show that estimating linear cointegration models to test for the interdependence of interest rates is not adequate for international data as model’s parameters change according to economic and financial regimes. Taking into account the smooth transition of interest rates from one regime to another may therefore lead to superior interest rate forecasts. Furthermore, as far as short-term interest rates reflect not only the current changes but also the expectations about the future changes in policy rates, an individual central bank may have interest to consider the policy actions of the others when setting its own target interest rate. Although we propose a suitable approach to analyze the interdependence of international interest rates, our study requires more refined extensions as it does not show the implications of interdependence on the behavior of main economic aggregates such as supply, demand, prices and foreign exchange rates. A general equilibrium model for international interest rates with threshold effects is indeed needed.