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Testing for Real Interest Rate Convergence in European Countries

Author

Listed:
  • Stilianos Fountas
  • Jyh-lin Wu

    (Department of Economics, National University of Ireland, Galway)

Abstract

We use cointegration tests that determine endogenously the regime shift to test for bilateral short-term and long-term real interest rate convergence in the European Monetary System in the 1979--1993 period. The results of these tests provide strong evidence in favour of bilateral real interest rate convergence between Germany and several countries in our sample, particularly for long-term real interest rates. This result carries the important policy implication that in several European countries monetary policy has lost some of its effectiveness as a stabilisation policy tool.

Suggested Citation

  • Stilianos Fountas & Jyh-lin Wu, 1998. "Testing for Real Interest Rate Convergence in European Countries," Working Papers 24, National University of Ireland Galway, Department of Economics, revised 1998.
    • Handle: RePEc:nig:wpaper:0024
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    File URL: http://www.economics.nuig.ie/resrch/paper.php?pid=28
    File Function: First version, 1998
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    File URL: http://www.economics.nuig.ie/resrch/paper.php?pid=28
    File Function: Revised version, 1998
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    JEL classification:

    • F3 - International Economics - - International Finance

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