Excess US bank reserves and the short-term interest rate differentials: evidence from bivariate cointegration analysis

Muhammad Mustafa and Matiur Rahman

Applied Economics Letters, 1999, vol. 6, issue 6, 333-336

Abstract: This paper seeks to explore the possible long-run causal connection between the excess US bank reserves and the short-term interest rate differentials (differences between the federal funds rates and discount rates) within the well-known bivariate cointegration framework. It uses monthly data from February 1984 through March 1992. Each time series is nonstationary and reveals I (1) behaviour. There is evidence of a long-run equilibrium relation between the two variables. The estimates of the error-correction models reveal a unidirectional long-run causality flowing from the short-term interest rate differentials to the excess US bank reserves.

Date: 1999
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DOI: 10.1080/135048599353023

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