Convergence and Anchoring of Yield Curves in the Euro Area

Michael Ehrmann, Marcel Fratzscher, Refet S Güürkaynak and Eric Swanson
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Refet S Güürkaynak: Bilkent University and CEPR
Authors registered in the RePEc Author Service: Refet S. Gürkaynak

The Review of Economics and Statistics, 2011, vol. 93, issue 1, 350-364

Abstract: We study the convergence of European bond markets and the anchoring of inflation expectations in the euro area from 1993 to 2008, using high-frequency bond yield data for France, Germany, Italy, and Spain; some smaller euro-area countries; and a control group comprising the United Kingdom, Denmark, and Sweden. We find that Economic and Monetary Union (EMU) led to substantial convergence in euro-area sovereign bond markets in terms of interest rate levels, unconditional daily fluctuations, and conditional responses to major macroeconomic announcements. Our findings also suggest a substantial increase in the anchoring of long-term inflation expectations since EMU, particularly for Italy and Spain. Finally, we present evidence that the elimination of exchange rate risk and the adoption of a common monetary policy were the primary drivers of bond market convergence in the euro area, as opposed to fiscal policy and the loose exchange rate peg of the 1990s. © 2011 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Date: 2011
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Related works:
Working Paper: CONVERGENCE AND ANCHORING OF YIELD CURVES IN THE EURO AREA (2009)
Working Paper: Convergence and Anchoring of Yield Curves in the Euro Area (2007)
Working Paper: Convergence and anchoring of yield curves in the euro area (2007)
Working Paper: Convergence and anchoring of yield curves in the Euro area (2007)
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