Interest Rate Volatility Prior to Monetary Union under Alternative Pre-Switch Regimes

Bernd Wilfling

German Economic Review, 2003, vol. 4, issue 4, 433-457

Abstract: The volatility of interest rates is relevant for many financial applications. Under realistic assumptions the term structure of interest rate differentials provides an important predictor of the term structure of interest rates. This paper derives the term structure of differentials in a situation in which two open economies plan to enter a monetary union in the future. Two systems of floating exchange rates prior to the union are considered, namely a free-float and a managed-float regime. The volatility processes of arbitrary-term differentials under the respective pre-switch arrangements are compared. The paper elaborates the singularity of extremely short-term (i.e. instantaneous) interest rates under extensive leaning-against-the-wind interventions and discusses policy issues.

Keywords: Interest rate volatility; term structure; exchange rate arrangements; intervention policy; stochastic processes (search for similar items in EconPapers)
Date: 2003
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://doi.org/10.1111/j.1465-6485.2003.00088.x (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
Journal Article: Interest Rate Volatility Prior to Monetary Union under Alternative Pre‐Switch Regimes (2003)
Working Paper: Interest Rate Volatility Prior to Monetary Union Under Alternative Pre-Switch Regimes (2001)
Working Paper: Interest rate volatility prior to monetary union under alternative pre-switch regimes (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:germec:v:4:y:2003:i:4:p:433-457

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/ger/html

DOI: 10.1111/j.1465-6485.2003.00088.x

Access Statistics for this article

German Economic Review is currently edited by Peter Egger, Almut Balleer, Jesus Crespo-Cuaresma, Mario Larch, Aderonke Osikominu and Georg Wamser

More articles in German Economic Review from De Gruyter
Bibliographic data for series maintained by Peter Golla ().