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Money-Income Relationships between Three ERM Countries

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  • Taufiq Choudhry

    ()
    (University of Southampton)

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    Abstract

    This paper investigates the monetary interdependence and the money-income relationship between countries under a pegged and a floating exchange rate system during the same time period (1979-1997). The relationship is tested between three ERM countries, France, Germany and Holland, and also between these countries and the United States. The ERM countries have a pegged exchange rate between themselves, and the rate between these countries and the United States is freely floating. The empirical tests are conducted by means of the Johansen multivariate cointegration method and the error correction model. Among the ERM countries, international transmission of monetary policy is found in almost all directions. This may provide evidence against the theory of German domination of the EMU. In the second set of tests, the United States money is found to affect all three European incomes but not vice versa.

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    File URL: http://www.cema.edu.ar/publicaciones/download/volume5/choudhry.pdf
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    Bibliographic Info

    Article provided by Universidad del CEMA in its journal Journal of Applied Economics.

    Volume (Year): V (2002)
    Issue (Month): (May)
    Pages: 59-94

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    Handle: RePEc:cem:jaecon:v:5:y:2002:n:1:p:59-94

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    Related research

    Keywords: monetary policy; cointegration; error correction; speed of adjustment; exchange rate;

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