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What happened to the transatlantic capital market relations?

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  • Weber, Enzo

Abstract

This paper investigates the capital market relations between Euroland and the USA from 1990 until 2006. Formally based on the uncovered interest rate parity (UIP), backward recursive estimations establish a long-run equilibrium between European and US government bond yields. Since the mid-1990s though, cointegration can only be achieved additionally considering the exchange rate. The reason proves a stochastic trend common to the European interest and the exchange rate, consistently explained by central bank reactions and unfinished learning processes on the role of the euro. Furthermore, the US capital market dominance is strongly reduced, leading to transatlantic interdependence at eye level.

Suggested Citation

  • Weber, Enzo, 2007. "What happened to the transatlantic capital market relations?," SFB 649 Discussion Papers 2007-014, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2007-014
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    Cited by:

    1. Philipp Matros & Enzo Weber, 2014. "Non-stationary Interest Rate Differentials and the Role of Monetary Policy," International Economic Journal, Taylor & Francis Journals, vol. 28(3), pages 497-512, September.
    2. repec:hum:wpaper:sfb649dp2007-060 is not listed on IDEAS
    3. Muhammad Omer & Jakob de Haan & Bert Scholtens, 2019. "Does Uncovered Interest Rate Parity Hold After All?," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 24(2), pages 49-72, July-Dec.
    4. Weber, Enzo, 2007. "Who Leads Financial Markets?," MPRA Paper 5099, University Library of Munich, Germany, revised Oct 2007.
    5. Perederiy, Volodymyr, 2007. "Kombinierte Liquiditäts- und Solvenzkennzahlen und ein darauf basierendes Insolvenzprognosemodell für deutsche GmbHs," SFB 649 Discussion Papers 2007-060, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    6. Sussman, Nathan & Saadon, Yossi, 2018. "Nominal exchange rate dynamics and monetary policy: uncovered interest rate parity and purchasing power parity revisited," CEPR Discussion Papers 13235, C.E.P.R. Discussion Papers.
    7. repec:hum:wpaper:sfb649dp2007-015 is not listed on IDEAS

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    More about this item

    Keywords

    Capital Market; UIP; Euro Area; United States;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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