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Financial Markets' Assessment of EMU

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  • David S. Bates

Abstract

This article reviews the assumptions and methodologies underlying EMU probability calculators,' which infer from financial data the probability of specific countries joining the European Monetary Union. Some historical evidence is presented in support of the expectations hypothesis for intra-European interest rate differentials underlying most calculators, while various potential biases are deemed negligible. The various EMU calculators differ primarily in their scenarios for intra-European interest rate differentials conditional upon EMU not occurring. This article also discusses what can be inferred from financial data regarding future policies of the European Central Bank.

Suggested Citation

  • David S. Bates, 1999. "Financial Markets' Assessment of EMU," NBER Working Papers 6874, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:6874
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    Cited by:

    1. Diebold, Francis X. & Li, Canlin, 2006. "Forecasting the term structure of government bond yields," Journal of Econometrics, Elsevier, vol. 130(2), pages 337-364, February.
    2. Viktors Ajevskis & Kristine Vitola, 2010. "A Convergence Model of the Term Structure of Interest Rates," Review of Finance, European Finance Association, vol. 14(4), pages 727-747.
    3. Fagan, Gabriel & Gaspar, Ví­tor, 2007. "Adjusting to the euro," Working Paper Series 716, European Central Bank.
    4. Favero, Carlo A., 1999. "Financial markets' assessments of EMU : A comment," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 51(1), pages 271-280, December.
    5. Driessen, Joost & Perotti, Enrico, 2011. "Confidence building on Euro convergence: Evidence from currency options," Journal of International Money and Finance, Elsevier, vol. 30(3), pages 474-491, April.
    6. Piotr Mielus, 2012. "Market Measures of Convergence in Central & Eastern Europe Emerging Markets in the Period of Turbulences on the Financial Market," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 31.

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    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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