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The Effect of Monetary Unification on German Bond Markets

  • 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)

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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Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën, International Economics in its series International Economics Working Papers Series with number wpie005.

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Length: 45 pages
Date of creation: Nov 2001
Date of revision:
Handle: RePEc:kul:kulwps:wpie005
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  1. Monika Piazzesi, 2001. "An Econometric Model of the Yield Curve with Macroeconomic Jump Effects," NBER Working Papers 8246, National Bureau of Economic Research, Inc.
  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. de Jong, Frank, 1999. "Time-series and Cross-section Information in Affine Term Structure Models," CEPR Discussion Papers 2065, C.E.P.R. Discussion Papers.
  4. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1997. "Monetary Policy Rules in Practice: Some International Evidence," CEPR Discussion Papers 1750, C.E.P.R. Discussion Papers.
  5. Duffie, Darrell & Huang, Ming, 1996. " Swap Rates and Credit Quality," Journal of Finance, American Finance Association, vol. 51(3), pages 921-49, July.
  6. Duan, Jin-Chuan & Simonato, Jean-Guy, 1999. " Estimating and Testing Exponential-Affine Term Structure Models by Kalman Filter," Review of Quantitative Finance and Accounting, Springer, vol. 13(2), pages 111-35, September.
  7. Hans Dewachter & Marco Lyrio & Konstantijn Maes, 2001. "Estimation of a Joint Model for the Term Structure of Interest Rates and the Macroeconomy," International Economics Working Papers Series ces0118, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, International Economics.
  8. Kozicki, Sharon & Tinsley, P. A., 2001. "Shifting endpoints in the term structure of interest rates," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 613-652, June.
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