This study uses non-stationary econometrics to analyze asymmetry and dominance within the EMS through interest rate linkages between the French franc, the German deutsche mark and the US dollar. High frequency data (daily Eurorates from April 1983 to the end of 1992) are used for their better suitability to the analysis of the causal linkages. 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 types of causality are then studied: causality in short-run dynamics and through long-run exogeneity in the VAR representation as well as neutrality in the MA representation. On both periods, causality tests confirm the French rate is submitted to the German dominance in the short-run. Posterior to the unification, the German interest rate is strongly exogenous, even with respect to the dollar. The neutrality analysis also shows the forces driving the system are the dollar and the DM rates prior to unification, but only the latter afterwards.
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Paper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number
280.
Length: pages Date of creation: May 1994 Date of revision: Handle: RePEc:bon:bonsfb:280
Contact details of provider: Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany Fax: +49 228 73 9221 Web page: http://www.bgse.uni-bonn.de/index.php?id=517
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Find related papers by JEL classification: F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
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