Maturities, Nonlinearities, and the International Transmission of Short-Term Interest Rates
AbstractThis paper employs linear and nonlinear Granger causality tests to re-examine the dynamic relation between daily Eurodollar and U.S. certificates of deposit rates during the July 16, 1973 to May 1, 2006 period. This study also conducts sub-period analysis based on the switching regression technique of Goldfield and Quant (GQSRT) (1972, 1973, and 1976). The main empirical findings are (1) Full-sample results show significant bi-directional linear causality from the CD and CD interest rates for one-month maturities and unidirectional linear causality between the EURO and CD interest rates for three-month and six-month maturities. Furthermore, full-sample results reveal for all three maturities. (2) Sub-sample results based on linear tests show a unidirectional causal relation from the CD rate to the EURO rate during the first sub-period for all three maturities. During the second sub-period, however, linear tests uncover a strong bi-directional relation between the CD and the Euro rates for all three maturities. The linear results for the third sub-period reveal mostly unidirectional causality from the EURO rate to the Cd for three maturities. (3) Finally, sub-sample nonlinear causality tests reveal mostly a unidirectional causality from the CD rate to the EURO rate for all three maturities during the first sub-sample, a strong significant bi-directional causality between the two rates for all three maturities during the second sub-period, and an uneven bi-directional causality between the two rates for all three maturities during the third sub-period. Overall, the results of this study show that the EURO rateâ€™s role is becoming more prominent compared to that of the CD rate.
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Bibliographic InfoArticle provided by Review of Applied Economics in its journal Review of Applied Economics.
Volume (Year): 4 (2008)
Issue (Month): 1-2 ()
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Web page: http://www.lincoln.ac.nz/story11874.html
Eurodollar interest rates; CD interest rates; linear and nonlinear causality; financial market integration; Farm Management; International Relations/Trade; F3; C1;
Find related papers by JEL classification:
- F3 - International Economics - - International Finance
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
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