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Testing For Real Interest Rate Convergence In European Countries
Author(s) -
Fountas Stilianos,
Wu Jyhlin
Publication year - 1999
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/1467-9485.00126
Subject(s) - economics , cointegration , convergence (economics) , interest rate , real interest rate , sample (material) , monetary policy , macroeconomics , term (time) , monetary economics , econometrics , international economics , chemistry , physics , chromatography , quantum mechanics
We use cointegration tests that determine endogenously the regime shift to test for bilateral short‐term and long‐term real interest rate convergence in the European Monetary System in the 1979–1993 period. The results of these tests provide strong evidence in favour of bilateral real interest rate convergence between Germany and several countries in our sample, particularly for long‐term real interest rates. This result carries the important policy implication that in several European countries monetary policy has lost some of its effectiveness as a stabilisation policy tool.