International Parity Relationships Between Germany and the United States: A Joint Modelling Approach

Katarina Juselius and Ronald MacDonald

No 2004/08, FRU Working Papers from University of Copenhagen. Department of Economics. Finance Research Unit

Abstract: This paper examines the interrelations between purchasing power parity, uncovered interest parity, the term structure of interest rates and the Fisher real interest rate parity using cointegration analysis. Dynamic adjustment and feed-back effects are estimated jointly in a full system of equations. An important finding is that the very slow, though significant, price adjustment towards sustainable levels of real exchange rates, has been compensated by corresponding changes in the spread of long-term bond rates. Related to this is the strong empirical support for the weak exogeneity of long-term bond rates, signifying the importance of the large US trade deficits (i.e. the low levels of US savings) and, hence, their linkage to international finance. Altogether, the results suggest that the transmission mechanisms over the post Bretton Woods period have been significantly different from standard theoretical assumptions.

Keywords: PPP; UIP; Fisher parity; Term structure (search for similar items in EconPapers)
JEL-codes: E31 E43 F31 F32 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2003-10
References: Add references at CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.econ.ku.dk/FRU/WorkingPapers/PDF/2004/2004_08.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.econ.ku.dk/FRU/WorkingPapers/PDF/2004/2004_08.pdf [301 Moved Permanently]--> https://www.econ.ku.dk/FRU/WorkingPapers/PDF/2004/2004_08.pdf)

Related works:
Working Paper: International Parity Relationships between Germany and the United States: A Joint Modelling Approach (2000)
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:kud:kuiefr:200408

Access Statistics for this paper

More papers in FRU Working Papers from University of Copenhagen. Department of Economics. Finance Research Unit �ster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark. Contact information at EDIRC.
Bibliographic data for series maintained by Thomas Hoffmann ().