Does the euro dominate Central and Eastern European money markets?

Mario Cerrato, Alexander Kadow () and Ronald MacDonald

Working Papers from Business School - Economics, University of Glasgow

Abstract: The so-called German Dominance Hypothesis (GDH) claimed that Bundesbank policies were transmitted into other European Monetary System (EMS) interest rates during the pre-euro era. We reformulate this hypothesis for the Central and Eastern European (CEE) countries that are on the verge of accessing the eurozone. We test this "Euro Dominance Hypothesis (EDH)" in a novel way using a global vector autoregressive (GVAR) approach that combines country-specific error correction models in a global system. We find that euro area monetary policies are transmitted into CEE interest rates, which provides evidence for monetary integration between the eurozone and CEE countries. Our framework also allows for introducing global monetary shocks to provide empirical evidence regarding the effects of the recent financial crisis on monetary integration in Europe.

Keywords: German Dominance Hypothesis; Global VAR; Central and Eastern Europe; monetary integration; European integration. (search for similar items in EconPapers)
JEL-codes: E58 F36 G15 (search for similar items in EconPapers)
Date: 2010-06
New Economics Papers: this item is included in nep-cba, nep-eec, nep-ifn, nep-mac, nep-mon and nep-tra
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Related works:
Journal Article: Does the euro dominate Central and Eastern European money markets? (2013)
Working Paper: Does the euro dominate Central and Eastern European money markets? (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2010_21

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