International Linkages in Short- and Long-Term Interest Rates
AbstractThis paper examines interest rate linkages in the G7 economies by testing for cointegration and employing the causality testing method for unstable systems recently introduced by Toda and Yamamoto (1995), which results in standard asymptotics. The results show that whilst domestic macroeconomic variables are important determinants of long-term interest rates, international linkages play a major role in the case of short-term rates. We also find that causation within the ERM runs from France to Germany, which suggests that, in order to function smoothly, a system such as the ERM requires its largest player to accommodate policy variation elsewhere, rather than impose its own monetary stance as in the ‘German Leadership Hypothesis’ (GLH). The main results are confirmed by the stability analysis.
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Bibliographic InfoArticle provided by Faculty of Economics and Business, University of Zagreb in its journal Zagreb International Review of Economics and Business.
Volume (Year): 3 (2000)
Issue (Month): 2 (November)
Postal: Zagreb International Review of Economics and Business, Faculty of Economics and Business, Trg J. F. Kennedy 6, 10000 Zagreb, Croatia.
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- F3 - International Economics - - International Finance
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