The Interaction between American and European IRS Interest Rates

Giovanni Verga, Federica Trani and Nicoleta Vasilcovschi

Scientific Annals of Economics and Business (continues Analele Stiintifice), 2018, vol. 65, issue 1, 81 - 96

Abstract: European interest rates movements are affected by various internal and external factors. This paper studies the link between European and American short- and long-term interest rates. In particular, we consider the forward interest rates coming from euro and dollar IRS term structures. The econometric techniques employed are co-integration, Granger-causality, OLS and GMM. Our results indicate that European remote settlement forward and long-term interest rates are primarily driven by US rates and confirm that the causality acts mainly from the US to the Eurozone. This was true even during the recent periods of European Central Bank quantitative easing. These factors weaken the ECB’s ability to intervene. In fact, we found the impact of American monetary policy on long-term interest rates to be also relevant for European bonds. JEL Codes - C51; E47; E58

Keywords: forward interest rates; euro and dollar; cointegration; causality; dynamic (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:aic:saebjn:v:65:y:2018:i:1:p:81-96:n:100

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