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Forward Interest Rates as Predictors of EMU

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  • De Grauwe, Paul
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    Abstract

    The use of forward interest rates with a settlement time after the start of EMU (1 January 1999) allows us to derive probabilities attached by the market to the occurrence of EMU. We use the DM/ECU forward interest rates as our central source of information. We arrive at the conclusion that the market attaches a very low probability to the ECU being transformed into the Euro, with an irrevocably fixed exchange rate with the other EMU member countries, by 1999. We also compute the probabilities of entry into EMU for individual currencies.

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    Bibliographic Info

    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1395.

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    Date of creation: May 1996
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    Handle: RePEc:cpr:ceprdp:1395

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    Related research

    Keywords: Monetary Integration;

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    Cited by:
    1. Favero, Carlo A & Giavazzi, Francesco & Iacone, Fabrizio & Tabellini, Guido, 1997. "Extracting Information from Asset Prices: The Methodology of EMU Calculators," CEPR Discussion Papers 1676, C.E.P.R. Discussion Papers.
    2. J. Weidmann, 1996. "The likelihood of European Monetary Union," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 49(199), pages 405-413.
    3. Wilfling, Bernd, 2009. "Volatility regime-switching in European exchange rates prior to monetary unification," Journal of International Money and Finance, Elsevier, vol. 28(2), pages 240-270, March.
    4. Juan-Angel Jimenez-Martin & Alfonso Novales Cinca, 2009. "State-Uncertainty preferences and the Risk Premium in the Exchange rate market," Documentos del Instituto Complutense de Análisis Económico 0908, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales.
    5. David S. Bates, 1999. "Financial Markets' Assessment of EMU," NBER Working Papers 6874, National Bureau of Economic Research, Inc.
    6. Robert N. McCauley & William R. White, 1997. "The Euro and European financial markets," BIS Working Papers 41, Bank for International Settlements.
    7. Viktors Ajevskis & Kristine Vitola, 2009. "A Convergence Model of the Term Structure of Interest Rates," Working Papers 2009/01, Latvijas Banka.
    8. Robert McCauley, 1999. "The Euro and the Dollar, 1998," Open Economies Review, Springer, vol. 10(1), pages 91-133, February.
    9. J. Weidmann, 1996. "The likelihood of European Monetary Union," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 49(199), pages 405-413.
    10. Reher, Gerrit & Wilfling, Bernd, 2014. "The valuation of European call options on zero-coupon bonds in the run-up to a fixed exchange-rate regime," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 483-496.
    11. Livio Stracca, . "Economics and Politics: Interest Rate Convergence in Europe and EMU," Discussion Papers in European Economics 99/6, Department of Economics, University of Leicester.
    12. Jean-Paul Pollin & Servane Pfister & Raphaelle Bellando, 2000. "Évolution et déterminants de la crédibilité de l’Union Monétaire Européenne durant la phase de transition : une étude comparative France, Italie et Grande-Bretagne," Revue d'Économie Financière, Programme National Persée, vol. 56(1), pages 165-194.

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