Interdependence between the Euro Area and the Us: What Role for Emu?

54 Pages Posted: 4 Feb 2003

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)

Date Written: December 2002

Abstract

This paper investigates whether the degree and nature of interdependence between the US and the euro area have changed with the advent of EMU. Using real-time data, it addresses this issue from the perspective of financial markets by analysing the effects of monetary policy announcements and macroeconomic news on daily interest rates in the US and the euro area. The paper finds that the interdependence of money markets has steadily increased over time, with the spillover effects from the US to the euro area being somewhat stronger than in the opposite direction. Moreover, we find evidence that the markets were going through a learning process about the ECB monetary policy. Towards the end of our sample period, the importance attached to euro area consumer prices and M3 has reached levels that are remarkably similar to the role of German consumer prices and M3 for German interest rates prior to EMU.

Keywords: Interdependence, announcements, money markets, real-time data, euro area

JEL Classification: E43, E52, F42

Suggested Citation

Ehrmann, Michael and Fratzscher, Marcel, Interdependence between the Euro Area and the Us: What Role for Emu? (December 2002). Available at SSRN: https://ssrn.com/abstract=376184 or http://dx.doi.org/10.2139/ssrn.376184

Michael Ehrmann (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344/7327 (Phone)
+49 69 1344/6000 (Fax)

Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
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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