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The Effect of Monetary Unification on German Bond Markets

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Author Info

  • Hans Dewachter

    () (K.U.Leuven and Erasmus University of Rotterdam)

  • Marco Lyrio

    () (K.U.Leuven, C.E.S., International Economics)

  • Konstantijn Maes

    () (K.U.Leuven, C.E.S., International Economics)

Abstract

This paper uses reprojection to develop a benchmark to assess ECB monetary policy since January 1999, the start of EMU. We first estimate an essentially affine term structure model for the German SWAP yield curve between 1987:04-1998:12. The German monetary policy is then reprojected onto the EMU period (1999:01-2001:08). We find that the German real interest rate in place during the EMU period is significantly lower than it would have been in case the Bundesbank were still in charge. We also show the effect of EMU on the German SWAP yield curve. Short- and medium-term bonds seem to have been more affected than long-term bonds.

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Bibliographic Info

Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën, International Economics in its series International Economics Working Papers Series with number ces0205.

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Length: 37 pages
Date of creation: Nov 2001
Date of revision:
Handle: RePEc:kul:kulwps:ces0205

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Keywords: EMU; ECB; Bundesbank; central bank monetary policy rule; essentially affine term structure model;

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References

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  1. David K. Backus, 2001. "Affine Term Structure Models and the Forward Premium Anomaly," Journal of Finance, American Finance Association, vol. 56(1), pages 279-304, 02.
  2. Ang, Andrew & Piazzesi, Monika, 2003. "A no-arbitrage vector autoregression of term structure dynamics with macroeconomic and latent variables," Journal of Monetary Economics, Elsevier, vol. 50(4), pages 745-787, May.
  3. Dewachter, Hans & Lyrio, M & Maes, Konstantijn, 2001. "Estimation of a joint model for the term structure of interest rates and the macroeconomy," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/103639, Katholieke Universiteit Leuven.
  4. Gregory R. Duffee, 2002. "Term Premia and Interest Rate Forecasts in Affine Models," Journal of Finance, American Finance Association, vol. 57(1), pages 405-443, 02.
  5. Jin-Chuan Duan & Jean-Guy Simonato, 1995. "Estimating and Testing Exponential Affine Term Structure Models by Kalman Filter," CIRANO Working Papers 95s-44, CIRANO.
  6. Hans Dewachter & Konstantijn Maes, 2001. "An Admissible Affine Model for Joint Term Structure Dynamics of Interest Rates," International Economics Working Papers Series wpie001, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, International Economics.
  7. Sharon Kozicki & P.A. Tinsley, 1997. "Shifting endpoints in the term structure of interest rates," Research Working Paper 97-08, Federal Reserve Bank of Kansas City.
  8. Monika Piazzesi, 2001. "An Econometric Model of the Yield Curve with Macroeconomic Jump Effects," NBER Working Papers 8246, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Konstantijn Maes, 2004. "Modeling the Term Structure of Interest Rates: Where Do We Stand?," Working Paper Research 42, National Bank of Belgium.
  2. Markus Junker & Alexander Szimayer & Niklas Wagner, 2004. "Nonlinear Term Structure Dependence: Copula Functions, Empirics, and Risk Implications," Econometrics 0401007, EconWPA.
  3. Peter Vlaar, 2007. "Term Structure Modeling for Pension Funds:What to do in Practice?," DNB Working Papers 123, Netherlands Central Bank, Research Department.
  4. Marco Lyrio & Hans Dewachter & Konstantijn Maes, 2006. "A joint model for the term structure of interest rates and the macroeconomy," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(4), pages 439-462.
  5. Peter Spreij & Enno Veerman & Peter Vlaar, 2008. "Multivariate Feller conditions in term structure models: Why do(n't) we care?," Papers 0804.1039, arXiv.org.
  6. Peter Hordahl & Oreste Tristani & David Vestin, 2004. "A joint econometric model of macroeconomic and term structure dynamics," Money Macro and Finance (MMF) Research Group Conference 2003 48, Money Macro and Finance Research Group.
  7. Marco Lyrio & Hans Dewachter, 2004. "Filtering Long-Run Inflation Expectations with a Structural Macro Model of the Yield Curve," Computing in Economics and Finance 2004 188, Society for Computational Economics.
  8. Alain Durré, 2006. "The Liquidity Premium in the Money Market: A Comparison of the German Mark Period and the Euro Area," German Economic Review, Verein für Socialpolitik, vol. 7, pages 163-187, 05.
  9. SANTOS, Carlos & OLIVEIRA, Maria Alberta, 2007. "Modelling The German Yield Curve And Testing The Lucas Critique, 1975-2001," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 7(1).
  10. Hans Dewachter & Marco Lyrio & Konstantijn Maes, 2006. "A multi-factor model for the valuation and risk managment of demand deposits," Working Paper Research 83, National Bank of Belgium.

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