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Excess US bank reserves and the short-term interest rate differentials: evidence from bivariate cointegration analysis

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  • Muhammad Mustafa
  • Matiur Rahman

Abstract

This paper seeks to explore the possible long-run causal connection between the excess US bank reserves and the short-term interest rate differentials (differences between the federal funds rates and discount rates) within the well-known bivariate cointegration framework. It uses monthly data from February 1984 through March 1992. Each time series is nonstationary and reveals I (1) behaviour. There is evidence of a long-run equilibrium relation between the two variables. The estimates of the error-correction models reveal a unidirectional long-run causality flowing from the short-term interest rate differentials to the excess US bank reserves.

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  • Muhammad Mustafa & Matiur Rahman, 1999. "Excess US bank reserves and the short-term interest rate differentials: evidence from bivariate cointegration analysis," Applied Economics Letters, Taylor & Francis Journals, vol. 6(6), pages 333-336.
    • Handle: RePEc:taf:apeclt:v:6:y:1999:i:6:p:333-336
    DOI: 10.1080/135048599353023
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    References listed on IDEAS

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    Cited by:

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