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British Interest Rate Convergence between the US and Europe: A Recursive Cointegration Analysis

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Author Info
Enzo Weber

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Abstract

This paper addresses the question of the British state of convergence towards the Euro area, compared to the USA. Economically, the analysis is based on dependences in the money and capital markets, namely the uncovered interest parity (UIP) and the expectation hypothesis of the term structure (EHT). The econometric procedure consists of backward recursive calculations carried out in a cointegration framework. As the evidence for the single parities remains unconvincing, UIP and EHT are combined in a common model. Generally, the results are in favour of a growing British integration into the European Currency Union.

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Publisher Info
Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2006-005.

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Length: 21 pages
Date of creation: Jan 2006
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Handle: RePEc:hum:wpaper:sfb649dp2006-005

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Related research
Keywords: Nominal Convergence; Cointegration; UIP; Term Structure; Euro Area;

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Find related papers by JEL classification:
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions

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