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A retrospective structural break analysis of the French German interest rate differential in the run-up to EMU

European Monetary Union and Capital Markets

ISBN: 978-0-76230-830-9, eISBN: 978-1-84950-128-6

Publication date: 13 December 2001

Abstract

Mean breaks in the Franco-German interest rate differential prior to European Monetary Union can have an economic interpretation, namely gains or losses in credibility of the corresponding ERM central exchange rate. A variety of tests are used to detect such breaks, on daily data covering the 1990s. The analysis paints a broadly consistent picture of these breaks and how expectations evolved before EMU. Results suggest that credibility was characterised by gains as well as setbacks; however an effective convergence is found from 1996 onwards, suggesting a major increase of the credibility of the French participation to EMU around that date.

Citation

Henry, J. and McAdam, P. (2001), "A retrospective structural break analysis of the French German interest rate differential in the run-up to EMU", European Monetary Union and Capital Markets (International Finance Review, Vol. 2), Emerald Group Publishing Limited, Leeds, pp. 21-49. https://doi.org/10.1016/S1569-3767(01)02004-0

Publisher

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Emerald Group Publishing Limited

Copyright © 2001, Emerald Group Publishing Limited