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Edwards and Khan (1985) present a model for determining the interest rate in developing countries.
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"Interest rates in developing countries are very very high," says Pitta. "The average interest rate for the BRIC countries of Brazil, Russia, India and China is 175percentt per year".
The world has been awash in liquidity thanks to low interest rates in developed countries.
"Interest rates rising in the emerging world could drive up interest rates in the developing world," said Tharman Shanmugaratnam, the finance minister of Singapore and the new chairman of the International Monetary and Financial Committee.
"The world hasn't seen a significant pick-up in investment despite the fact that we have had near zero interest rates in most developed countries.
Economic power seems to have made a decisive shift.The crisis was followed by the slashing of interest rates in the developed world.
Asia's strong recovery, together with low interest rates in most developed countries, has brought huge short-term capital inflows into the region, it said.
Germany in the early 2000s is a case in point: because of its wage adjustment, it had low inflation and consequently one of the highest real interest rates in the developed world.
Between 1979 and 2009 this "carry trade" delivered a positive return in every year bar three.Now that nominal interest rates in most developed markets are close to zero, there is less scope for the carry trade.
With zero interest rates in the developed world the 2% rate on short-term U.S. T-bills and higher rates on longer-dated Treasurys, are a draw to foreigners.
Nominal interest rates in much of the developed world are close to zero, and central banks have been buying bonds through the policy of quantitative easing.
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