Dynamics of Intra-EMS Interest Rate Linkages

Christopher Baum and John Barkoulas

Journal of Money, Credit and Banking, 2006, vol. 38, issue 2, 469-482

Abstract: A number of previous studies have questioned the dominant role of Germany within the European Monetary System (EMS). These conclusions are often based on empirical findings that the interest rates of EMS member countries are not affected by German interest rates, even in the long run. In this study, we demonstrate that intra-EMS interest rate differentials (vis-a-vis Germany) exhibit mean-reverting behavior characterized by long-memory dynamics. In a system incorporating six EMS countries and one non-EMS country (the U.S.A.), estimates from a fractional error correction model suggest the presence of short-run intra-EMS monetary-policy interdependencies but validate the German Dominance Hypothesis in the long run.

Date: 2006
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Related works:
Working Paper: Dynamics of Intra-EMS Interest Rate Linkages (2004)
Working Paper: Dynamics of Intra-EMS Interest Rate Linkages (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:38:y:2006:i:2:p:469-482

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