Interest rate volatility prior to monetary union under alternative pre-switch regimes

Bernd Wilfling

No 143, HWWA Discussion Papers from Hamburg Institute of International Economics (HWWA)

Abstract: The volatility of interest rates is relevant for many financial applications. Under realistic assumptions the term structure of interest rate differentials provides an important prediction of the term structure of interest rates. This paper derives the term structure of differentials in a situation in which two open economies plan to enter a monetary union in the future. Two systems of floating exchange rates prior to the union are considered, namely a free-float and a managed-float regime. The volatility processes of arbitraryterm differentials under the respective pre-switch arrangements are compared. The paper elaborates the singularity of extremely short-term (i.e. instantaneous) interest rates under extensive leaning-against-the-wind intervention policies and discusses empirical issues.

Keywords: Interest rate volatility; term structure; exchange rate arrangements; intervention policy; stochastic processes (search for similar items in EconPapers)
JEL-codes: C52 E43 F31 F33 (search for similar items in EconPapers)
Date: 2001
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/19408/1/143.pdf (application/pdf)

Related works:
Journal Article: Interest Rate Volatility Prior to Monetary Union under Alternative Pre‐Switch Regimes (2003)
Journal Article: Interest Rate Volatility Prior to Monetary Union under Alternative Pre-Switch Regimes (2003)
Working Paper: Interest Rate Volatility Prior to Monetary Union Under Alternative Pre-Switch Regimes (2001)
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:zbw:hwwadp:26277

Access Statistics for this paper

More papers in HWWA Discussion Papers from Hamburg Institute of International Economics (HWWA) Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().