Different interest rates move together due to financial market integration and arbitrage.
the verdict
SUPPORTED
the evidence backs this
refutedsupported
the weight of evidence
5 sources for · 0 against
Peer-reviewed economic literature and financial studies report that various interest rates exhibit co-movement and long-run equilibrium relationships driven by market integration and arbitrage mechanisms.
Abstract Over the last decades, despite the remarkable progress toward the harmonization of banking regulation, interest rate differentials in the Eurozone remain large. In this context, rejecting the law of one price as a measure of financial integration, this paper applies the co-integration technique to investigate the presence of a long-run equilibrium relationship among retail interest rates. The data sample of the co-integration analysis conducted in this paper includes three (3) loan and two (2) deposit interest rates data sets from the 12 original Eurozone member countries for the time period 2000–2020, filling in that way the gap in the existing research by extending the application of this methodology to incorporate an updated database. The empirical findings of the paper provide evidence that in most of cases, there is a co-movement and a long-run equilibrium relationship between retail interest rates. On the basis of the co-integration approach, these findings are being perceived as a signal of retail banking market integration in the Eurozone.
We introduce a no‐arbitrage dynamic term structure model integrated with a shadow rate and drifting trends to estimate the real interest rate trend in the United States, the United Kingdom, and Germany from 1972 to 2022. Our findings reveal declining interest rate trends across all three countries since the 1990s, underpinned by a significant co‐movement among them. We evaluate the long‐run correlations between the interest rate trends and various macro‐economic fundamentals to shed light on potential driving forces of the declining interest rate trend.
Abstract Interbank interest rates and Treasury Bill (TB) yields of maturities of three and six months move together, but not 12 months, under a “quantitative and qualitative easing policy.” On the other hand, interbank interest rates and TB yields of maturities of 3, 6, and 12 months move together under a “negative interest rate policy.” Interbank and TB markets are partially integrated up to the 6‐month maturity as a short‐term money market under a “quantitative and qualitative easing policy,” while interbank and TB markets are integrated up to the 12‐month maturity as a short‐term money market under a “negative interest rate policy.” This indicates that the arbitrage of interbank and TB markets works. Practitioners of the interbank market are limited to financial institutions, but those of TB markets also include non‐financial institutions.
A central feature of the analysis of earlier chapters has been the complex linkage of monetary conditions between countries brought about by international capital movements. An important aspect of the international monetary system is therefore the extent to which, under various exchange-rate regimes, countries are able to pursue independent monetary policies. In particular, the extent to which interest rates in different financial centres move together is one measure of the degree of interdependence of national monetary systems.
1911 Encyclopædia Britannica/Arbitrage
ARBITRAGE, the term applied to the system of equalizing prices in different commercial centres by buying in the cheaper market and selling in the dearer. These transactions, or their converse, are mainly confined to stocks and shares, foreign exchanges and bullion; and are for the most part carried on between London and other European capitals and largely with New York. When prices in London are affected by financial or political causes, all other markets are sooner or later influenced, as London is the banking and financial centre for the commerce of the world. It may, however, also occur that some local event of importance initiates a rise or fall in a particular market which must ultimately affect other countries. For instance, a crisis in France would immediately depress all French securities, and by exciting the fears of capitalists would stimulate transfers of funds and raise all the exchanges against France. In ordinary times those engaged in arbitrage operate with a very small margin of profit.
Everything we examined (5)
This check searched the claim as stated. It did not run a separate search for evidence against it.