Who is ruling Europe? Empirical evidence on the German Dominance Hypothesis

Mariam Camarero and Javier Ordóñez

Empirical Economics, 2001, vol. 26, issue 4, 623-650

Abstract: The aim of this paper is to analyze the hypothesis of German dominance in the European Monetary System (EMS). For this purpose, we use monthly interest rates for nine European countries from January 1979 to the second half of 1997. In particular, we test the stability of the implied long-run relationships to assess whether there has been a significant change in the EMS performance. The econometric methodology is based on Johansen's maximum likelihood procedure and several tests for parameter instability. The most important finding is that, although Germany has a significant influence on the monetary policy of the other European countries, it is not possible to accept the existence of dominance.

Keywords: asymmetry; cointegration; structural change; German dominance; interest rate; weak exogeneity. (search for similar items in EconPapers)
JEL-codes: C32 F36 (search for similar items in EconPapers)
Date: 2001-12-05
Note: received: May 1999/Final version received: November 2000
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Citations: View citations in EconPapers (6)

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