The Interaction between American and European IRS Interest Rates

Verga Giovanni (), Trani Federica () and Vasilcovschi Nicoleta ()
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Verga Giovanni: Department of Economics and Business Administration, University of Parma, Parma, Italy
Trani Federica: Banca Credito Valtellinese, Milan, Italy
Vasilcovschi Nicoleta: QiLu Sino-Canadian International Program, Shandong, China

Scientific Annals of Economics and Business, 2018, vol. 65, issue 1, 81-96

Abstract: European interest rates movements are affected by various internal and external factors. This paper studies the link between European and American short- and long-term interest rates. In particular, we consider the forward interest rates coming from euro and dollar IRS term structures. The econometric techniques employed are co-integration, Granger-causality, OLS and GMM. Our results indicate that European remote settlement forward and long-term interest rates are primarily driven by US rates and confirm that the causality acts mainly from the US to the Eurozone. This was true even during the recent periods of European Central Bank quantitative easing. These factors weaken the ECB’s ability to intervene. In fact, we found the impact of American monetary policy on long-term interest rates to be also relevant for European bonds.

Keywords: forward interest rates; euro and dollar; cointegration; causality; dynamic (search for similar items in EconPapers)
JEL-codes: C51 E47 E58 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:aicuec:v:65:y:2018:i:1:p:81-96:n:6

DOI: 10.2478/saeb-2018-0006

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