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Modeling Nonlinear and Heterogeneous Dynamic Linkages in International Monetary Markets
Macroeconomic Dynamics (2012)
  • Mohamed Arouri
  • Duc Khuong Nguyen
  • Fredj Jawadi
Abstract
We use daily short-term interbank interest rates of France, the United Kingdom, and the United States to examine the dynamic links of international monetary markets from 2004 to 2009. Results from vector error-correction models and smooth-transition error-correction models show strong evidence of nonlinear and heterogeneous causalities between the three interest rates. We also find that changes in the U.S. interest rate deviations from the long-run equilibrium led those in France and in the United Kingdom by one to two days. Finally, the national interest rate nexus appears to converge in nonlinear fashion toward a steady state because it is subject to structural change beyond a certain rate threshold. Our findings have important implications for the actions of leading central banks (ECB, Bank of England, and U.S. Fed) because the joint behavior of short-term interest rates can be viewed as an indicator of the degree of central banks' policy interdependence.
Publication Date
2012
Citation Information
Mohamed Arouri, Duc Khuong Nguyen and Fredj Jawadi. "Modeling Nonlinear and Heterogeneous Dynamic Linkages in International Monetary Markets" Macroeconomic Dynamics Vol. 16 Iss. S2 (2012)
Available at: http://works.bepress.com/duckhuong_nguyen/4/