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Equal Size, Equal Role? Interest Rate Interdependence Between the Euro Area and the United States

  • Michael Ehrmann
  • Marcel Fratzscher

This article investigates whether the degree of interdependence between the US and the euro area has changed with EMU by analysing the effects of monetary policy and macroeconomic news on daily interest rates in the two economies. The article finds a strongly increased interdependence of money markets around EMU. Spillover effects from the US to the euro area remain stronger than in the opposite direction, but US markets have started reacting to euro area developments. In recent years certain US macroeconomic news affect euro area money markets and have become good leading indicators for the euro area. Copyright 2005 Royal Economic Society.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0297.2005.01025.x
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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 115 (2005)
Issue (Month): 506 (October)
Pages: 928-948

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Handle: RePEc:ecj:econjl:v:115:y:2005:i:506:p:928-948
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  1. Gaspar, Vitor & Perez-Quiros, Gabriel & Sicilia, Jorge, 2001. "The ECB Monetary Policy Strategy and the Money Market," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(4), pages 325-42, October.
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  6. Ehrmann, Michael & Fratzscher, Marcel, 2003. "Monetary Policy Announcements and Money Markets: A Transatlantic Perspective," International Finance, Wiley Blackwell, vol. 6(3), pages 309-28, Winter.
  7. Michael J. Fleming & Eli M Remolona, 1999. "The term structure of announcement effects," BIS Working Papers 71, Bank for International Settlements.
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  10. Kim, Suk-Joong & Sheen, Jeffrey, 2000. "International linkages and macroeconomic news effects on interest rate volatility -- Australia and the US," Pacific-Basin Finance Journal, Elsevier, vol. 8(1), pages 85-113, March.
  11. M. Ehrmann & M. Fratzscher, 2003. "Interdependence between the Euro area and the U.S.: what role for EMU?," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
  12. Linda Goldberg & Deborah Leonard, 2003. "What moves sovereign bond markets? The effects of economic news on U.S. and German yields," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 9(Sep).
  13. Gabriele Galati & Corrinne Ho, 2001. "Macroeconomic news and the euro/dollar exchange rate," BIS Working Papers 105, Bank for International Settlements.
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  15. Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June.
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