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British interest rate convergence between the US and Europe: A recursive cointegration analysis

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  • Weber, Enzo

Abstract

This paper addresses the question of the British state of convergence towards the Euro area, compared to the USA. Economically, the analysis is based on dependences in the money and capital markets, namely the uncovered interest parity (UIP) and the expectation hypothesis of the term structure (EHT), The econometric procedure consists of backward recursive calculations carried out in a cointegration framework. As the ecidence for the single parities remains unconvincing, UIP and EHT are combined in a common model. Generally, the results are in favour of a growing British integration into the European Currency Union.

Suggested Citation

  • Weber, Enzo, 2006. "British interest rate convergence between the US and Europe: A recursive cointegration analysis," SFB 649 Discussion Papers 2006-005, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2006-005
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    References listed on IDEAS

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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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