Dynamics of Intra-EMS Interest Rate Linkages

Christopher Baum and John Barkoulas

No 492, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: A number of previous studies have questioned the dominant role of Germany within the EMS. These conclusions are often based on empirical findings that interest rates of member countries of the EMS are not affected by German interest rates, even in the long run. In this study we establish evidence to the contrary by demonstrating that intra-EMS interest rate differentials (vis-a-vis Germany) exhibit mean-reverting behavior (a necessary but not sufficient condition for German dominance) characterized by long-memory dynamics. In a system incorporating six EMS countries and one non-EMS country (the U.S.), estimates from a fractional error correction model suggest the presence of short-run intra-EMS monetary-policy interdependencies, but they validate the German Dominance Hypothesis in the long run.

Keywords: EMS; interest rates; German dominance; mean reversion; monetary policy (search for similar items in EconPapers)
JEL-codes: C22 E43 E44 E61 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2001-02-13, Revised 2004-05-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published, Journal of Money, Credit and Banking, 2006, 38, 469-482

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Related works:
Journal Article: Dynamics of Intra-EMS Interest Rate Linkages (2006)
Working Paper: Dynamics of Intra-EMS Interest Rate Linkages (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:492

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