In principle, the increasing global integration of financial markets, by reducing the scope for individual central banks to control domestic interest rates, could hamper the ability of monetary policy to stabilize prices and economic activity.
Indeed, some evidence appears to suggest that foreign factors influence interest rates; for example, the global saving glut does seem to have led to somewhat lower long-term interest rates by reducing term premiums (Warnock and Warnock, 2006). More generally, research points to important linkages between U.S. and foreign interest rates and other asset prices (Ehrmann, Fratzscher and Rigobon, 2005; Faust and others, 2007).