Convergence in Interest Rates and Inflation Rates across Countries and over Time
Pierre Siklos () and
Mark Wohar ()
Review of International Economics, 1997, vol. 5, issue 1, 129-41
We examine the relationship between interest rates and inflation rates for 10 countries during the period 1974-95. We find evidence of a unique cointegrating relationship between nominal interest rates of European Monetary System (EMS) countries, the US and Canada, and the US, Germany, and Japan. No similar relationship is obtained between inflation rates with one exception, namely that between the US and Canada. We interpret these results as convergence in inflation but not in interest rates. Hence, if interest rates represent an indicator of monetary policy, the countries considered have attempted to implement independent policies but not to an extent which produced divergent trends in inflation. Copyright 1997 by Blackwell Publishing Ltd.
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