Equal Size, Equal Role? Interest Rate Interdependence between the Euro Area and the United States

52 Pages Posted: 25 Aug 2004

See all articles by Michael Ehrmann

Michael Ehrmann

European Central Bank (ECB); Bank of Canada

Marcel Fratzscher

DIW Berlin; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: April 2004

Abstract

This paper investigates whether the degree of interdependence between the United States and the euro area economies has changed with the advent of EMU. It addresses this issue from the perspective of financial markets by analysing the effects of monetary policy and macroeconomic news on daily interest rates. First, the paper finds that the interdependence of money markets has increased strongly around EMU. Although spillover effects from the United States to the euro area remain stronger than in the opposite direction, US markets have started reacting to euro area developments since the onset of EMU. Second, certain US macroeconomic news affect euro area money markets, especially in recent years. Finally, we show that US macroeconomic news have become good leading indicators for economic developments in the euro area, indicating that the higher money market interdependence is at least partly explained by the increased real integration of the two economies.

Keywords: interdependence, announcements, news, money markets, real-time data, United States, euro area

JEL Classification: E43, E52, F42

Suggested Citation

Ehrmann, Michael and Fratzscher, Marcel, Equal Size, Equal Role? Interest Rate Interdependence between the Euro Area and the United States (April 2004). Available at SSRN: https://ssrn.com/abstract=532985 or http://dx.doi.org/10.2139/ssrn.532985

Michael Ehrmann (Contact Author)

European Central Bank (ECB) ( email )

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Germany
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Bank of Canada ( email )

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Canada

Marcel Fratzscher

DIW Berlin ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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