Interest rate convergence in the EMS prior to European Monetary Union

Michael Frömmel and Robinson Kruse

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: In this paper we analyze the convergence of interest rates in the European Monetary System (EMS) in a framework of changing persistence. This allows us to estimate the exact date of full convergence from the data. A change in persistence means that a time series switches from stationarity to non-stationarity, or vice versa. It is often argued that due to the specific historical situation in the EMS the interest rate differential was non-stationary before the full convergence of interest rates was achieved and stationary afterwards. Our empirical results suggest that the convergence date has been very different for Belgium, France, the Netherlands and Italy and are in line with the conclusions one would draw from a narrative approach. We compare three different estimators for the convergence date and find that the results are quite robust. Our results therefore stress the importance of credibility for monetary policy.

Keywords: Interest rates; convergence; changing persistence; EMS; EMU (search for similar items in EconPapers)
JEL-codes: C22 F33 F36 (search for similar items in EconPapers)
Pages: 26
Date: 2009-06-02
New Economics Papers: this item is included in nep-cba and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://repec.econ.au.dk/repec/creates/rp/09/rp09_23.pdf (application/pdf)

Related works:
Journal Article: Interest rate convergence in the EMS prior to European Monetary Union (2015)
Working Paper: Interest rate convergence in the EMS prior to European Monetary Union (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2009-23

Access Statistics for this paper

More papers in CREATES Research Papers from Department of Economics and Business Economics, Aarhus University
Bibliographic data for series maintained by ().