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What happened to the transatlantic capital market relations?

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  • Weber, Enzo

Abstract

This paper investigates the capital market relations between Euroland and the USA from 1990 until 2006. The UIP-implied long-run relation between European and US government bond yields is shown breaking down in the mid-1990s. However, contrasting with conventional theory, a stationary equilibrium exists additionally including the exchange rate. The reason proves to be a stochastic trend common to the European interest and the euro/dollar rate, which is explained by central bank reactions and unfinished learning processes on the role of the euro. Furthermore, the paper demonstrates a striking reduction in the US capital market dominance, leading to transatlantic interdependence at eye level.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 28 (2011)
Issue (Month): 3 (May)
Pages: 877-884

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Handle: RePEc:eee:ecmode:v:28:y:2011:i:3:p:877-884

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Web page: http://www.elsevier.com/locate/inca/30411

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Keywords: Capital market UIP Euro area United States;

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Cited by:
  1. Weber, Enzo, 2007. "Who Leads Financial Markets?," MPRA Paper 5099, University Library of Munich, Germany, revised Oct 2007.
  2. Volodymyr Perederiy, 2007. "Kombinierte Liquiditäts- und Solvenzkennzahlen und ein darauf basierendes Insolvenzprognosemodell für deutsche GmbHs," SFB 649 Discussion Papers SFB649DP2007-060, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  3. Omer, Muhammad & de Haan, Jakob & Scholtens, Bert, 2013. "Does Uncovered Interest rate Parity Hold After All?," MPRA Paper 47572, University Library of Munich, Germany.

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