Asymmetries in the European Monetary System: Evidence from Interest Rates

Abstract

This paper tests for asymmetries in the European Monetary System (EMS). The analysis indicates that any asymmetric movements between German and other EMS interest rates originating from changes in the US rate are temporary and tend to be eliminated during subsequent periods through offsetting interest rate adjustments. Furthermore, the trivariate error correction vector autoregression analysis of interest rate relationships among the US, Germany and each of the other EMS countries suggests that German leadership is not an EMS-wide phenomenon, since it is confirmed only with respect to Belgium and France