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The Euro Area and World Interest Rates

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  • Chinn, Menzie
  • Frankel, Jeffrey A.

Abstract

We analyze the behavior of world interest rates, focusing on the ramifications of European Monetary Union. Our analysis indicates that nominal US interest rates tend to drive European rates at both the short and long horizons. There is some evidence that US rates are becoming increasingly influenced by European rates, but the relationship is still far from symmetric, despite EMU. We also investigate the empirical determinants of real interest rates over the past decade and a half. Real US interest rates also have an influence upon European rates, although German rates do not appear to have a similar effect upon US rates. Conditioning on foreign interest rates, we find that real interest rates on government debt depend significantly upon current and expected levels of debt, in Europe as in the US.

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Bibliographic Info

Paper provided by Department of Economics, UC Santa Cruz in its series Santa Cruz Department of Economics, Working Paper Series with number qt9823140f.

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Date of creation: 22 Nov 2003
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Handle: RePEc:cdl:ucscec:qt9823140f

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Keywords: interest rates; inflation; debt; financial integration;

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References

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  1. Popper, Helen, 1993. "Long-term covered interest parity: evidence from currency swaps," Journal of International Money and Finance, Elsevier, vol. 12(4), pages 439-448, August.
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  8. Kenneth A. Froot and Jeffrey A. Frankel., 1988. "Forward Discount Bias: Is It an Exchange Risk Premium?," Economics Working Papers 8874, University of California at Berkeley.
  9. Jeffrey A. Frankel and Shang-Jin Wei., 1995. "European Integration and the Regionalization of World Trade and Currencies: The Economics and the Politics," Center for International and Development Economics Research (CIDER) Working Papers C95-053, University of California at Berkeley.
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  25. Vassiliki Koutsogeorgopoulou, 2000. "A Post-Mortem on Economic Outlook Projections," OECD Economics Department Working Papers 274, OECD Publishing.
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Citations

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Cited by:
  1. Carlos A. Primo Braga & Gallina A. Vincelette, 2011. "Sovereign Debt and the Financial Crisis : Will This Time Be Different?," World Bank Publications, The World Bank, number 2534.
  2. Michal Brzoza-Brzezina & Jesus Crespo Cuaresma, 2008. "Mr. Wicksell and the global economy: What drives real interest rates?," Working Papers 139, Oesterreichische Nationalbank (Austrian Central Bank).
  3. De Loubens, A. & Idier, J. & Jardet, C., 2007. "Determinants of long-term interest rates in the United States and the euro area: A multivariate approach," Working papers 170, Banque de France.
  4. Linda S. Goldberg & Michael W. Klein, 2005. "Establishing Credibility: Evolving Perceptions of the European Central Bank," The Institute for International Integration Studies Discussion Paper Series iiisdp105, IIIS.
  5. John C. Bluedorn & Christopher Bowdler, 2005. "Monetary Policy and Exchange Rate Dynamics: New Evidence from the Narrative Approach to Shock Identification," Economics Papers 2005-W18, Economics Group, Nuffield College, University of Oxford.
  6. Adam S. Posen & Daniel Popov Gould, 2006. "Has EMU Had Any Impact on the Degree of Wage Restraint?," Working Paper Series WP06-6, Peterson Institute for International Economics.
  7. Stefano Schiavo, 2005. "Euro bonds: in search of financial spillovers," Sciences Po publications 2, Sciences Po.
  8. repec:onb:oenbwp:y::i:139:b:1 is not listed on IDEAS
  9. Enzo Weber, 2007. "What Happened to the Transatlantic Capital Market Relations?," SFB 649 Discussion Papers SFB649DP2007-014, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  10. Enzo Weber, 2007. "Who Leads Financial Markets?," SFB 649 Discussion Papers SFB649DP2007-015, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  11. Mariam Camarero & Josep Lluis Carrion Silvestre & Cecilio Tamarit, 2006. "New evidence of the real interest rate parity for OECD countries using panel unit root tests with breaks," Working Papers in Economics 159, Universitat de Barcelona. Espai de Recerca en Economia.
  12. Irina Yakadina & Michael Kumhof, 2007. "Politically Optimal Fiscal Policy," IMF Working Papers 07/68, International Monetary Fund.
  13. Enzo Weber, 2006. "The Euro and the Transatlantic Capital Market Leadership: A Recursive Cointegration Analysis," SFB 649 Discussion Papers SFB649DP2006-056, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.

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