IDEAS home Printed from https://ideas.repec.org/p/kud/kuiefr/200408.html
   My bibliography  Save this paper

International Parity Relationships Between Germany and the United States: A Joint Modelling Approach

Author

Listed:
  • Katarina Juselius

    (Institute of Economics, University of Copenhagen)

  • Ronald MacDonald

    (Department of Economics, University of Strathclyde)

Abstract

This paper examines the interrelations between purchasing power parity, uncovered interest parity, the term structure of interest rates and the Fisher real interest rate parity using cointegration analysis. Dynamic adjustment and feed-back effects are estimated jointly in a full system of equations. An important finding is that the very slow, though significant, price adjustment towards sustainable levels of real exchange rates, has been compensated by corresponding changes in the spread of long-term bond rates. Related to this is the strong empirical support for the weak exogeneity of long-term bond rates, signifying the importance of the large US trade deficits (i.e. the low levels of US savings) and, hence, their linkage to international finance. Altogether, the results suggest that the transmission mechanisms over the post Bretton Woods period have been significantly different from standard theoretical assumptions.

Suggested Citation

  • Katarina Juselius & Ronald MacDonald, 2003. "International Parity Relationships Between Germany and the United States: A Joint Modelling Approach," FRU Working Papers 2004/08, University of Copenhagen. Department of Economics. Finance Research Unit.
    • Handle: RePEc:kud:kuiefr:200408
    as

    Download full text from publisher

    File URL: http://www.econ.ku.dk/FRU/WorkingPapers/PDF/2004/2004_08.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    More about this item

    Keywords

    PPP; UIP; Fisher parity; Term structure;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kud:kuiefr:200408. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Thomas Hoffmann (email available below). General contact details of provider: https://edirc.repec.org/data/okokudk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.