Reference no: EM13687819

INTEGRATION OF KEY WORLDWIDE MONEY MARKET INTEREST RATES AND THE FEDERAL FUNDS RATE: AN EMPIRICAL INVESTIGATION

The literature on the integration of key domestic and international market interest rates is extensive. This literature review includes a select group of studies widely cited. These studies are divided into two categories. The first category of studies, which I refer to as early studies, mainly focused on testing for causal links among the domestic and foreign interest rates. The second category of studies was mainly interested in testing the ‘expectations hypothesis' of the term structure of interest rates, besides examining their short-term dynamics. Expectations hypothesis is that long-term interest rate is the average of the current short-term rates and expected future short-term rates plus a constant term premium.