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European integration and asymmetry in the EMS

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  • Merih Uctum

Abstract

The empirical literature offers conflicting views of German dominance in the European Monetary System. We examine the validity of the German dominance hypothesis (GDH) by analyzing the responses of the European central banks and the money markets to monetary innovations originating both in Europe (European asymmetry) and abroad (international asymmetry). Our results reconcile the conflicting views in the literature. The GDH is confirmed when the analysis is conducted with intervention rates before the German unification. Results support European asymmetry with short rates before 1990 but not international asymmetry. After 1990 the GDH is not supported by either set of rates.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Research Paper with number 9605.

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Date of creation: 1996
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Handle: RePEc:fip:fednrp:9605

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Keywords: European Monetary System (Organization) ; Europe;

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  1. Hagen, Jurgen von & Fratianni, Michele, 1990. "German dominance in the EMS: evidence from interest rates," Journal of International Money and Finance, Elsevier, Elsevier, vol. 9(4), pages 358-375, December.
  2. Richard Clarida & Mark Gertler, 1996. "How the Bundesbank Conducts Monetary Policy," NBER Working Papers 5581, National Bureau of Economic Research, Inc.
  3. Cohen, Daniel & Wyplosz, Charles, 1989. "The European Monetary Union: An Agnostic Evaluation," CEPR Discussion Papers, C.E.P.R. Discussion Papers 306, C.E.P.R. Discussion Papers.
  4. Campbell, John & Perron, Pierre, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know about Unit Roots," Scholarly Articles 3374863, Harvard University Department of Economics.
  5. Sims, Christopher A., 1992. "Interpreting the macroeconomic time series facts : The effects of monetary policy," European Economic Review, Elsevier, Elsevier, vol. 36(5), pages 975-1000, June.
  6. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, American Economic Association, vol. 82(4), pages 901-21, September.
  7. Karfakis, C. J. & Moschos, D.M., 1990. "Interest Rate Linkages Within the European Monetary System: A Time Series Analysis," Working Papers 144, University of Sydney, School of Economics.
  8. Katarina Juselius, 1990. "Long-run Relations in a Well Defined Statistical Model for the Data Generating Process. Cointegration Analysis of the PPP and the UIP Relations," Discussion Papers 90-11, University of Copenhagen. Department of Economics.
  9. Michele Fratianni & Juergen Hagen, 1990. "German dominance in the EMS," Open Economies Review, Springer, Springer, vol. 1(1), pages 67-87, February.
  10. Francesco Giavazzi & Marco Pagano, 1991. "The Advantage of Tying One's Hands: EMS Discipline and Central Bank Credibility," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 303-330 National Bureau of Economic Research, Inc.
  11. Artus, P. & Avouyi-Dovi, S. & Bleuze, E. & Lecointe, F., 1991. "Transmission of U.S. monetary policy to Europe and asymmetry in the European monetary system," European Economic Review, Elsevier, Elsevier, vol. 35(7), pages 1369-1384, October.
  12. Koedijk, C.G. & Kool, C.J.M., 1992. "Dominant interest and inflation differentials within the EMS," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3108704, Tilburg University.
  13. Henry, Jerome & Jens Weidmann, 1994. "Asymmetry in the EMS revisited: Evidence from the causality analysis of daily Eurorates," Discussion Paper Serie B 280, University of Bonn, Germany.
  14. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, Econometric Society, vol. 59(6), pages 1551-80, November.
  15. Herz, Bernhard & Roger, Werner, 1992. "The EMS is a greater Deutschmark area," European Economic Review, Elsevier, Elsevier, vol. 36(7), pages 1413-1425, October.
  16. Michele Fratianni & Juergen Hagen, 1992. "German dominance in the EMS:The empirical evidence," Open Economies Review, Springer, Springer, vol. 3(1), pages 127-128, February.
  17. Chow, Gregory C, 1993. "A Two-Step Procedure for Estimating Linear Simultaneous Equations with Unit Roots," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 107-11, February.
  18. Grilli, Vittorio & Roubini, Nouriel, 1992. "Liquidity and exchange rates," Journal of International Economics, Elsevier, Elsevier, vol. 32(3-4), pages 339-352, May.
  19. Mélitz, Jacques, 1988. "Monetary Discipline and Cooperation in the European Monetary System: A Synthesis," CEPR Discussion Papers, C.E.P.R. Discussion Papers 219, C.E.P.R. Discussion Papers.
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  21. Katsimbris, George M & Miller, Stephen M, 1993. "Interest Rate Linkages within the European Monetary System: Further Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 25(4), pages 771-79, November.
  22. Merih Uctum, 1992. "Money markets and common monetary policy in France, Germany and Italy," Research Paper, Federal Reserve Bank of New York 9212, Federal Reserve Bank of New York.
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Citations

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Cited by:
  1. Clemens Kool & Alex Lammertsma, 2005. "Inflation Persistence under Semi-Fixed Exchange Rate Regimes: The European Evidence 1974–1998," Open Economies Review, Springer, Springer, vol. 16(1), pages 51-76, January.
  2. Bessler, David A. & Yang, Jian, 2003. "The structure of interdependence in international stock markets," Journal of International Money and Finance, Elsevier, Elsevier, vol. 22(2), pages 261-287, April.
  3. Nikiforos Laopodis, 2000. "Monetary policy implications of volatility linkages among long-term interest rates," Journal of Economics and Finance, Springer, Springer, vol. 24(2), pages 160-177, June.
  4. Ciner, Cetin, 2011. "Eurocurrency interest rate linkages: A frequency domain analysis," International Review of Economics & Finance, Elsevier, Elsevier, vol. 20(4), pages 498-505, October.
  5. Clarida, R. & Gertler, M., 1996. "How the Bundesbank Conducts Monetary Policy," Working Papers, C.V. Starr Center for Applied Economics, New York University 96-14, C.V. Starr Center for Applied Economics, New York University.
  6. Mete Feridun, 2006. "An Investigation of the German Dominance Hypothesis in the Context of Eastern Enlargement of the EU," Prague Economic Papers, University of Economics, Prague, University of Economics, Prague, vol. 2006(2), pages 172-182.
  7. C.J.M. Kool & A. Lammertsma, 2004. "Inflation Persistence under Semi-Fixed Exchange Rate Regimes:The European Evidence 1974-1998," Working Papers, Utrecht School of Economics 04-04, Utrecht School of Economics.
  8. Jian Yang & Hui Guo & Zijun Wang, 2004. "International transmission of inflation among G-7 countries: a data-determined VAR analysis," Working Papers, Federal Reserve Bank of St. Louis 2004-028, Federal Reserve Bank of St. Louis.
  9. Yang, Jian, 2005. "International bond market linkages: a structural VAR analysis," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 15(1), pages 39-54, January.
  10. G. Geoffrey Booth & Cetin Ciner, 2005. "German dominance in the European Monetary System: a reprise using robust Wald tests," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 12(8), pages 463-466.
  11. Wang, Zijun & Yang, Jian & Li, Qi, 2007. "Interest rate linkages in the Eurocurrency market: Contemporaneous and out-of-sample Granger causality tests," Journal of International Money and Finance, Elsevier, Elsevier, vol. 26(1), pages 86-103, February.
  12. Mohamed El Hedi Arouri & Duc Khuong Nguyen & Fredj Jawadi, 2010. "What can we tell about monetary policy synchronization and interdependence over the 2007-2009 global financial crisis?," Working Papers hal-00507826, HAL.
  13. Jian Yang, 2005. "Government bond market linkages: evidence from Europe," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 15(9), pages 599-610.
  14. Kim, Soyoung, 2002. "Exchange rate stabilization in the ERM: identifying European monetary policy reactions," Journal of International Money and Finance, Elsevier, Elsevier, vol. 21(3), pages 413-434, June.
  15. Laopodis, Nikiforos T., 2004. "European and international asymmetry in the volatility transmission mechanism: the "German Dominance Hypothesis" revisited," Journal of Economics and Business, Elsevier, Elsevier, vol. 56(2), pages 75-97.
  16. Marie Podevin, 2001. "Interaction entre taux d'intérêt allemands et français : un réexamen de l'hypothèse de dominance allemande," Économie et Prévision, Programme National Persée, Programme National Persée, vol. 148(2), pages 49-70.
  17. Forssbaeck, Jens & Oxelheim, Lars, 2005. "On the Link between Exchange-Rate Regimes and Monetary-Policy Autonomy: The European Experience," Working Paper Series, Research Institute of Industrial Economics 637, Research Institute of Industrial Economics.

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