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Information Transmission in the World Money Markets

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  • Bruce G. Resnick
  • Gary L. Shoesmith

Abstract

Using 1,966 daily observations since the introduction of the euro, we apply cointegration and error correction tests to examine information transmission in the major world money markets as represented by the domestic CD markets and the Eurocurrency market for the US dollar, euro, Japanese yen, and British pound sterling. Our inter†market tests show a high degree of integration and interdependency among inter†market interest rates. Our intra†market results show that $ LIBOR and  LIBOR rates drive  LIBOR and £ LIBOR. Application of Johansen's (1988) multivariate test procedure and Gonzalo and Granger's (1995) long†memory components technique confirms and reinforces our intra†market findings that the system of four LIBOR rates is fully integrated (i.e., three cointegrating vectors), with the single common trend driven by $ LIBOR and  LIBOR. These results are consistent with the strength of the dollar and yen relative to the pound sterling and the euro during the developing world financial crisis in late 2008.

Suggested Citation

  • Bruce G. Resnick & Gary L. Shoesmith, 2011. "Information Transmission in the World Money Markets," European Financial Management, European Financial Management Association, vol. 17(1), pages 183-200, January.
    • Handle: RePEc:bla:eufman:v:17:y:2011:i:1:p:183-200
    DOI: 10.1111/j.1468-036X.2008.00479.x
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    2. A. Can Inci & Bong Soo Lee, 2014. "Dynamic Relations between Stock Returns and Exchange Rate Changes," European Financial Management, European Financial Management Association, vol. 20(1), pages 71-106, January.

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