The objective of this research is to characterize the variation of real interest rates across 152 countries over available years of data since the floating FX rate period.
We assembled lending rates, inflation rates, population, GDP growth, budget deficits, current account deficits, and openness indicators. We will use a cross-sectional analysis by year, for 1975-2009. This cross-sectional approach allows us to get better statistics on the coefficients of interest and we can also study possible time patterns. For example, the opening of the capital markets has been a continuous process, and it may be that we can detect shifts in the importance of the various determinants of real rates as more economies become open.
The data-gathering process have been frustrating because certain variables turn out to be hard to find, even for developed countries. For this project, the definition of the variables has to be comparable across countries. For this reason we have limited ourselves to IFS, World Bank, the OECD, and Penn World Tables data.
We have also collected, geographic, geopolitical (wars, regimes, independence) as well as religion data for the countries in our sample. Further, we are continuing our efforts to collect good indicator data for "qualitative" institutional variables, such as governance, openness, and freedom.
At this stage we only have very preliminary results.