The Effect of Monetary Unification on German Bond Markets
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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