Additional Evidenceon Ems Interest Rate Linkages

ByJohn Thornton, Alicia García-Herrero

October 1, 1996

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This note examines interest rate linkages within the EMS. Cointegration tests suggest the existence of a long-run equilibrium relationship between German and other EMS interest rates. Bivariate VAR analysis finds that Granger-causality either stems from German to other European interest rates (Belgium, France, Spain, and the U.K.) or is bidirectional (Denmark and the Netherlands). When allowance is made for the influence of U.S. interest rates, the pattern of Granger causality is predominantly bidirectional.

Subject: Exchange rates, Foreign exchange, National accounts, Return on investment

Keywords: Ems country interest rates, Ems interest rate linkage, Ems interest rate movement, Ems interest rates, EMS interest rates, Exchange rates, Granger-causality test, interest rate, interest rate series, Return on investment, WP

Pages:
16
Volume:
1996
DOI:
https://doi.org/10.5089/9781451942941.001
Issue:
115
Series:
Working Paper No. 1996/115
Stock No:
WPIEA1151996
ISBN:
9781451942941
ISSN:
1018-5941

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