 Cointegration, Uncoverd Interest Parity and the Term Structure of Interest Rates: Some International EvidenceDimitris Georgoutsos and Georgios Kouretas European Research Studies Journal, 2002, vol. V, issue 1-2, 7-22 Abstract: This paper addresses the issue of the empirical investigation of monetary policy independence as this is manifested in the inter–relationships between domestic and foreign money market interest rates. Instead of following an ad–hoc econometric approach, we have imposed a specific economic structure on the proposed model by establishing a link of the yield curves of two different countries through the Uncovered Interest Rate Parity, UIP. The expectations hypothesis of the term structure and the UIP imply certain overidentifying restrictions on the cointegrating space of a vector autoregressive process consisting of the interest rates of the two markets. The model has been tested on data from the domestic US money market and the euromark and euroyen markets. The main finding of our analysis is that we reject the overidentifying restrictions of the models for the USD/DEM case but we are unable to reject them for the USD/JPY case, at the one percent significance level and this implies that the term spreads of the euroyen market are being affected, in the long run, by changes of the US short Fed funds rate. Keywords: cointegration; expectations theory; uncovered interest parity; eurocurrency markets; Granger causality (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ers:journl:v:v:y:2002:i:1-2:p:7-22 Access Statistics for this article More articles in European Research Studies Journal from European Research Studies Journal |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.