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Does the euro dominate Central and Eastern European money markets?

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  • Cerrato, Mario
  • Kadow, Alexander
  • MacDonald, Ronald
  • Straetmans, Stefan

Abstract

The so-called German Dominance Hypothesis (GDH) claimed that Bundesbank policies were transmitted into other European Monetary System (EMS) interest rates during the pre-euro era. We reformulate this hypothesis for the Central and Eastern European (CEE) countries that are on the verge of accessing the eurozone. We test this \Euro Dominance Hypothesis (EDH)" in a novel way using a global vector autoregressive (GVAR) approach that combines country-speci c error correction models in a global system. We nd that euro area monetary policies are transmitted into CEE interest rates which provides evidence for monetary integration between the eurozone and CEE countries. Our framework also allows for introducing global monetary shocks to provide empirical evidence regarding the e ects of the recent nancial crisis on monetary integration in Europe.

Suggested Citation

  • Cerrato, Mario & Kadow, Alexander & MacDonald, Ronald & Straetmans, Stefan, 2010. "Does the euro dominate Central and Eastern European money markets?," SIRE Discussion Papers 2010-55, Scottish Institute for Research in Economics (SIRE).
    • Handle: RePEc:edn:sirdps:192
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    File URL: http://hdl.handle.net/10943/192
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    3. Milan Deskar-Škrbiæ & Antonija Buljan & Mirna Dumèiæ, 2020. "Real interest rate convergence and monetary policy independence in CEE countries," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 38(2), pages 349-380.
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    More about this item

    Keywords

    German Dominance Hypothesis; Global VAR; Central and Eastern Europe; monetary integration; European integration;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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