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The European Monetary System and Real Interest Parity: Is there any Connection?

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  • Imad A. Moosa
  • Razzaque H. Bhatti

Abstract

This paper examines the proposition whether or not EMS membership is a necessary condition for real interest parity to hold, taking Germany as a reference country. Empirical results indicate that EMS membership is not a necessary condition for convergence on German real interest rates, since the relationship seems to hold best for Switzerland followed by the U.K. Moreover, results obtained from time-varying parameter regressions reveal that Swiss real interest rates have progressively converged on those of Germany since the early 1980s. It is concluded that the important underlying factor is a similarity between the German and Swiss central banks, rather than institutional arrangements like the EMS.

Suggested Citation

  • Imad A. Moosa & Razzaque H. Bhatti, 1996. "The European Monetary System and Real Interest Parity: Is there any Connection?," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 132(II), pages 223-235, June.
    • Handle: RePEc:ses:arsjes:1996-ii-7
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    Cited by:

    1. Shaista Alam & Muhammad Sabihuddin Butt & Azhar Iqbal, 2001. "The Long-run Relationship between Real Exchange Rate and Real Interest Rate in Asian Countries: An Application of Panel Cointegration," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 40(4), pages 577-602.
    2. Colin Allitt & Imad Moosa, 1998. "Consumption patterns as a measure of capital mobility: evidence from some APEC countries," Applied Economics, Taylor & Francis Journals, vol. 30(7), pages 885-891.

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