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Asymmetry in the EMS revisited: Evidence from the Causality Analysis of Daily Eurorates

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  • Jérôme HENRY
  • Jens WEIDMANN

Abstract

We use non-stationary econometrics to analyze asymmetry and dominance within the EMS through interest rate linkages from April 1983 to the end of 1992. Daily data (French, German and US one-month Eurorates) are used for their better suitability to the analysis of causality. We first show there is a break in the long-run structure of the system of interest rates: two sub-periods are therefore analyzed, before and after German unification. Three concepts of causality are then tested: causality in short-run dynamics and long-run exogeneity in the VAR representation as well as long-run impulse-response in the MA representation. On both sub-periods, tests confirm the French rate is submitted to the German dominance in the short-run. Posterior to the unification, the German interest rate dynamics does not even depend on that of the US rate. The MA analysis also shows the trends driving the system come from the US and the German rates prior to unification, but only from the latter afterwards.

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Bibliographic Info

Article provided by ENSAE in its journal Annals of Economics and Statistics.

Volume (Year): (1995)
Issue (Month): 40 ()
Pages: 125-160

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Handle: RePEc:adr:anecst:y:1995:i:40:p:06

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Cited by:
  1. V A Muscatelli & Patrizio Tirelli, 1995. "Institutional Change, Inflation Targets and the Stability of Interest Rate Reaction Functions in OECD Economies"," Working Papers 9606, Business School - Economics, University of Glasgow, revised Apr 1996.
  2. Forssbaeck, Jens & Oxelheim, Lars, 2005. "On the Link between Exchange-Rate Regimes and Monetary-Policy Autonomy: The European Experience," Working Paper Series 637, Research Institute of Industrial Economics.
  3. Oscar Bajo-Rubio & Simón Sosvilla-Rivero & Fernando Fernández-Rodríguez, . "Non-Linear Forecasting Methods: Some Applications to the Analysis of Financial Series," Working Papers 2002-01, FEDEA.
  4. Merih Uctum, 1996. "European integration and asymmetry in the EMS," Research Paper 9605, Federal Reserve Bank of New York.
  5. De Grauwe, Paul, 1995. "Alternative strategies towards monetary union," European Economic Review, Elsevier, vol. 39(3-4), pages 483-491, April.
  6. Velayoudom Marimoutou & Éric Girardin & Christian Bordes, 1996. "Le nouveau SME est-il plus asymétrique que l'ancien ?," Économie et Prévision, Programme National Persée, vol. 123(2), pages 175-188.
  7. Axel Cron, Jens Weidmann, 1996. "German Unification and the EMS: A Non-Parametric Approach to the Asymmetry Question," Discussion Paper Serie B 353, University of Bonn, Germany.
  8. Oscar Bajo-Rubio & Simón Sosvilla-Rivero & Fernado Fernández-Rodríguez, . "Asymmetry in the EMS: New evidence based on non-linear forecasts," Working Papers 97-24, FEDEA.
  9. Bruneau, Catherine & Jondeau, Eric, 1999. " Long-Run Causality, with an Application to International Links between Long-Term Interest Rates," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(4), pages 545-68, November.
  10. Oscar Bajo-Rubio & M. Dolores Montávez-Garcés, 2002. "Was there Monetary Autonomy in Europe on the eve of EMU? The German Dominance Hypothesis Re-Examined," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 185-207, November.
  11. Guglielmo Caporale & Nikitas Pittis, 1995. "Inflation convergence in the EMS: Some additional evidence. A reply," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 131(3), pages 587-593, September.
  12. B. Mojon, 1999. "Monetary policy under a quasi-fixed exchange rate regime. The case of France between 1987 and 1996," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 52(211), pages 401-430.
  13. Oscar Bajo-Rubio & M. Dolores Montávez-Garcés, . "There was monetary autonomy in Europe on the eve of EMU?. The German dominance hypothesis re-examined," Studies on the Spanish Economy 52, FEDEA.

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