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An empirical analysis of the German long-term interest rate

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  • Butter, Frank A.G. den

    (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics)

  • Jansen, Pieter W.

Abstract

This paper estimates the short run and long run influences of the main determinants of the German long-term interest rate using quarterly data for the period 1982-1999. A major reason for our focus on the German interest rate is that this rate, and hence its determinants, will be dominant in explaining the developments of the long-term Euro-rate in the intemational capital market. The specification of our interest rate equation encompasses various theories on interest formation. The short-term German interest rate and American and Japanese bond rates appear to be the most prominent determinants of the German (and hence Euro) rate but also the business cycle and the demand for capital play a role in explaining this interest rate.

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Bibliographic Info

Paper provided by VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics in its series Serie Research Memoranda with number 0029.

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Date of creation: 2001
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Handle: RePEc:dgr:vuarem:2001-29

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Keywords: German interest rate; interest formation at the capital market; Euro rate; co-integration;

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  1. M.M.G. Fase & P.J.G. Vlaar, 1997. "International convergence of capital market interest rates," WO Research Memoranda (discontinued) 519, Netherlands Central Bank, Research Department.
  2. Guglielmo Maria Caporale & Nikitas Pittis, 1997. "Domestic and external factors in interest rate determination," Applied Financial Economics, Taylor & Francis Journals, vol. 7(5), pages 465-471.
  3. F. Brayton & P. Tinsley, 1996. "A guide to FRB/US: a macroeconomic model of the United States," Finance and Economics Discussion Series 96-42, Board of Governors of the Federal Reserve System (U.S.).
  4. Coletti, D. & Hunt, B. & Rose, D. & Tetlow, R., 1996. "The Bank of Canada's New Quarterly Projection Model. Part 3 , the Dynamic Model : QPM," Technical Reports 75, Bank of Canada.
  5. Hamid Faruqee & Douglas Laxton & Bart Turtelboom & Peter Isard & Eswar Prasad, 1998. "Multimod Mark III," IMF Occasional Papers 164, International Monetary Fund.
  6. Garry J. Schinasi & T. Todd Smith & Charles Frederick Kramer, 2001. "Financial Implications of the Shrinking Supply of U.S. Treasury Securities," IMF Working Papers 01/61, International Monetary Fund.
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Cited by:
  1. Jansen, Pieter W., 2006. "Did capital market convergence lower the effectiveness of the interest rate as a monetary policy tool?," Serie Research Memoranda 0010, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  2. Jansen, Pieter W., 2006. "Low inflation, a high net savings surplus and institutional restrictions keep the Japanese long-term interest rate low," Serie Research Memoranda 0011, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  3. Frank A.G. den Butter & Pieter W. Jansen, 2008. "Beating the Random Walk: a Performance Assessment of Long-term Interest Rate Forecasts," Tinbergen Institute Discussion Papers 08-102/3, Tinbergen Institute.

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