In this paper, we examine international linkages in inflation and short-term interest rates using a global sample of OECD and emerging economies. Using a Bayesian global vector autoregression (GVAR) model, we show that for short-term interest rates both movements in inflation and output play an important role. In advanced countries, however, international factors such as foreign interest rates appear as an important driver of local interest rates. For inflation, we also find evidence for the importance of global factors, such as price developments in other countries, oil prices and the exchange rate. Again, this impact of global factors appears predominately in advanced countries. / Series: Department of Economics Working Paper Series

The sluggish development of corporate lending has remained the central concern of EU monetary policy makers as it is considered to hinder seriously the resurgence of growth. This paper looks at the development of loans to large corporations vs SMEs in the pre-crisis and post-crisis period and wishes to answer: (i) to which extent do allocated loan volumes actually contribute to Output growth? (ii) which factors determine the development of loans, considering above all loan interest rates? and (iii) what causes differences in loan interest levels across the EA? The results indicate that different loan developments in the EA explain very well differences in output development, loans to SMEs contribute even more to output growth than those for large corporations. Loan development itself is negatively influenced by the interest level which differs significantly across EA members, with small loans in addition always being charged an interest premium over large loans. The capitalization of banks, the size of banks and their internationalization play a role as well. A part of the sluggish growth of loans can be explained by the increasing use of alternative financial instruments by large firms. Interest rates in turn are following the ECB interest rate, - but this link has become looser in the post-crisis period, and long term government bond rates. Different risks faced by banks and different bank structures have become important explanatories of interest rates in the post-crisis period. (author's abstract) / Series: Department of Economics Working Paper Series