Volatility linkages among interest rates: Implications for global monetary policy

This paper explores the effects of a greater integration among major capital markets from 1984 to 2001 on the conduct of global monetary policy. The methodological design is a multivariate vector moving average GARCH model which is suitable for examining the nature of the volatility spillover mechanism of long-term interest rates across markets. The empirical findings indicate that there have been stronger linkages among major bond markets since 1990 at the volatility level. The more synchronized behaviour of long-term interest rates across countries is evidenced by the speed and persistence with which disturbances in a particular market transmit to other markets. Such volatile behaviour affects the conduct of global monetary policy which now has to be done interactively among the world's major players. Copyright (C) 2002 John Wiley Sons, Ltd.