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Linkages among Interest Rates in the United States, Germany and Norway
Author(s) -
Bremnes Helge,
Gjerde Oystein,
Sattem Frode
Publication year - 2001
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/1467-9442.00234
Subject(s) - interest rate , economics , cointegration , econometrics , impulse response , variance decomposition of forecast errors , interest rate parity , real interest rate , german , fisher hypothesis , variance (accounting) , currency , international fisher effect , multivariate statistics , norwegian , financial economics , monetary economics , statistics , mathematics , geography , mathematical analysis , linguistics , philosophy , accounting , archaeology
The Johansen multivariate cointegration methodology is used to analyze relationships among short‐term and long‐term interest rates in the United States, Germany and Norway. A variance decomposition approach is applied to estimate the proportion of each interest rate's forecast error variance attributable to innovations in the other interest rates. Impulse response functions are plotted to illustrate the speed with which interest rate events are transmitted between capital markets. The analyses illustrate that US interest rates have a significant influence on both German and Norwegian interest rates, while the reverse effect is modest. Norway is also strongly exposed to German interest rate movements, which reflects the consequences of a small country linking its currency to the value of European currencies.