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Tests for interest rate convergence and structural breaks in the EMS: further analysis

Author

Listed:
  • Mariam Camarero
  • Javier Ordon Ez
  • Cecilio Tamarit

Abstract

In this paper the linkages existing between the interest rates within the European Union countries are assessed, to discover if the Exchange Rate Mechanism has led to a converging process. This hypothesis is tested using the uncovered interest rate parity relative to the Maastricht Treaty's interest rate criterion. The obtained results allow classification of the European countries from the point of view of the degree of convergence already achieved. The techniques used are unit roots, allowing for endogenously determined changes in the deterministic trends of the data, as well as the Kalman filter, which permits the convergence path of the series to be followed.

Suggested Citation

  • Mariam Camarero & Javier Ordon Ez & Cecilio Tamarit, 2002. "Tests for interest rate convergence and structural breaks in the EMS: further analysis," Applied Financial Economics, Taylor & Francis Journals, vol. 12(6), pages 447-456.
    • Handle: RePEc:taf:apfiec:v:12:y:2002:i:6:p:447-456
    DOI: 10.1080/09603100010005294
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    References listed on IDEAS

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    1. Ogaki, Masao & Park, Joon Y., 1997. "A cointegration approach to estimating preference parameters," Journal of Econometrics, Elsevier, vol. 82(1), pages 107-134.
    2. Andrew G Haldane & Mahmood Pradhan, 1992. "Real interest parity, dynamic convergence and the European Monetary System," Bank of England working papers 1, Bank of England.
    3. Andrew G Haldane & Mahmood Pradhan, 1992. "Testing real interest parity in the European Monetary System," Bank of England working papers 2, Bank of England.
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    Citations

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    Cited by:

    1. Mariam Camarero & Juan Sapena & Cecilio Tamarit, 2020. "Modelling Time-Varying Parameters in Panel Data State-Space Frameworks: An Application to the Feldstein–Horioka Puzzle," Computational Economics, Springer;Society for Computational Economics, vol. 56(1), pages 87-114, June.
    2. Stefano Schiavo, 2005. "Euro bonds: in search of financial spillovers," Working Papers hal-01065566, HAL.
    3. Giorgio Canarella & Stephen Miller & Stephen Pollard, 2011. "The Global Financial Crisis and Stochastic Convergence in the Euro Area," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 17(3), pages 315-333, August.
    4. Minoas Koukouritakis, 2017. "Eurozone debt crisis and bond yields convergence: evidence from the new EU countries," Economic Change and Restructuring, Springer, vol. 50(3), pages 239-258, August.
    5. Thushyanthan Baskaran, 2009. "Did the Maastricht treaty matter for macroeconomic performance? A difference‐in‐difference investigation," Kyklos, Wiley Blackwell, vol. 62(3), pages 331-358, August.
    6. Kasman, Adnan & Kirbas-Kasman, Saadet & Turgutlu, Evrim, 2008. "Monetary policy convergence of potential EMU accession countries: A cointegration analysis with shifting regimes," Economic Modelling, Elsevier, vol. 25(2), pages 340-350, March.
    7. Alexander Ludwig, 2014. "Credit risk-free sovereign bonds under Solvency II: a cointegration analysis with consistently estimated structural breaks," Applied Financial Economics, Taylor & Francis Journals, vol. 24(12), pages 811-823, June.
    8. Sonila Beliu & Matthew Higgins, 2004. "Fractional cointegration analysis of EU convergence," Applied Economics, Taylor & Francis Journals, vol. 36(14), pages 1607-1611.
    9. DeLisle Worrell & Roland Craigwell & Travis Mitchell, 2008. "The behaviour of a small foreign exchange market with a long-term peg-Barbados," Applied Financial Economics, Taylor & Francis Journals, vol. 18(8), pages 673-682.
    10. Baskaran, Thushyanthan, 2009. "Did the Maastricht treaty matter for macroeconomic performance?," MPRA Paper 30106, University Library of Munich, Germany.
    11. repec:spo:wpmain:info:hdl:2441/7162 is not listed on IDEAS
    12. Basse, Tobias, 2020. "Solvency II and sovereign credit risk: Additional empirical evidence and some thoughts about implications for regulators and lawmakers," International Review of Law and Economics, Elsevier, vol. 64(C).
    13. repec:hal:spmain:info:hdl:2441/7162 is not listed on IDEAS
    14. Marjan Petreski, 2009. "Brief Empirics Of Interest - Rate Differential In Macedonia," Journal Articles, Center For Economic Analyses, pages 5-11, June.
    15. Adnan Kasman & Saadet Kirbas-Kasman & Evrim Turgutlu, 2005. "Nominal and real convergence between the CEE countries and the EU: a fractional cointegration analysis," Applied Economics, Taylor & Francis Journals, vol. 37(21), pages 2487-2500.
    16. repec:kap:iaecre:v:17:y:2011:i:3:p:315-333 is not listed on IDEAS
    17. Siklos, Pierre L., 2010. "Meeting Maastricht: Nominal convergence of the new member states toward EMU," Economic Modelling, Elsevier, vol. 27(2), pages 507-515, March.
    18. Sibbertsen, Philipp & Wegener, Christoph & Basse, Tobias, 2014. "Testing for a break in the persistence in yield spreads of EMU government bonds," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 109-118.

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