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The euro and the transatlantic capital market leadership: A recursive cointegration analysis

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  • Weber, Enzo

Abstract

In this paper, the capital market relations between the Euro area and the USA are subject to investigation. Formally based on the uncovered interest rate parity (UIP), first a longrun equilibrium between Euro and US government bond yields is established in backward recursively estimated vector error correction models (VECMs). Subsequently, the focus lies on interest rate leadership and adjustment as well as capital market integration. One major finding shows, that the foundation of the European Monetary Union (EMU) strengthened its role relative to the USA. Furthermore, the transatlantic connections have become closer in the course time.

Suggested Citation

  • Weber, Enzo, 2006. "The euro and the transatlantic capital market leadership: A recursive cointegration analysis," SFB 649 Discussion Papers 2006-056, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2006-056
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    References listed on IDEAS

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    1. Chinn, Menzie David & Frankel, Jeffrey A., 2003. "The Euro Area and World Interest Rates," Santa Cruz Department of Economics, Working Paper Series qt2nb2h4zr, Department of Economics, UC Santa Cruz.
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    3. Michael Ehrmann & Marcel Fratzscher, 2003. "Interdependence between the Euro area and the U.S.: what role for EMU?," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
    4. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-472, August.
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    6. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
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    Keywords

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • 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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