We show that global supply and demand shocks are important drivers of interest rate co-movement across seven advanced economies. Beyond that, local structural shocks transmit internationally via aggregate demand channels, and central banks react predominantly to domestic macroeconomic...

This paper examines the role of sovereign default beliefs for macroeconomic fluctuations and stabilisation policy in a small open economy where fiscal solvency is a critical problem. We set up and estimate a DSGE model on Turkish data and show that accounting for sovereign risk significantly...