Linkage in EMS term structures: evidence from common trend and transitory components

doi:10.1016/S0261-5606(97)00005-3

Journal of International Money and Finance

Volume 16, Issue 4, August 1997, Pages 595-607

https://doi.org/10.1016/S0261-5606(97)00005-3 Get rights and content

Abstract

We test for the link among selected EMS term structures during 1979–1995. By decomposing each term structure into its common trend and transitory components, we find that EMS common trends move together over time, that the German trend is not the driving source of the shared co-movements, and that the transitory components (‘spread’) are more loosely linked in recent years perhaps due to widened exchange rate bands. Our findings refute arguments that Germany plays a dominant role in setting policy and raise doubts that it will play a dominant role if and when EMU takes place.

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^∗: We thank Joe Haslag, Scott Hein, Eric Leeper, Michael Melivn, Ellis Tallman, and a referee for comments and suggestions. An earlier version of this paper was presented at meetings of the American Economic Association and Southern Economic Association. The usual caveat applies.

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Linkage in EMS term structures: evidence from common trend and transitory components

Abstract

Journal of Banking and Finance

Journal of Economics and Business

Journal of Economic Dynamics and Control

Journal of Policy Modeling

Journal of Monetary Economics

Journal of Monetary Economics

On the predictive power of interest rates and interest rate spreads

England Economic Review

The federal funds rate and the channels of monetary transmissions

American Economic Review

Cointegration and test of present-value models

Journal of Political Economy

EMS interest rate differentials and fiscal policy: A model with an empirical application to Italy

Who will join EMU? Impact of the Maastricht convergence criteria on economy policy choice and performance

The unstable EMS

Brooking Papers on Economic Activity

Exogeneity

Econometrica

The term structure as a predictor of real economic activity

Journal of Finance

Money, income, prices and interest rates

American Economic Review

Introduction to Statistical Time Series