Are Shocks to Interest Rate Volatility Symmetric Across EU Countries?
41 Pages Posted: 8 Feb 2002
In this paper we analyze the degree to which European economies are hit by symmetric shocks. We study shocks that lead to an increased volatility of the interest rate and model the behavior of European short term interest rates as having two regimes that correspond to high and low volatility of the rate. We use a bivariate switching regime model to compare the behavior over time of the Spanish interest rate with that of the four major EU countries. We find that the symmetry of shocks received by these countries in the years prior to the monetary union was not strong, thus giving evidence against the convenience of a unified monetary policy.
Keywords: Interest Rate Volatility, Switching Regime, EMU, Symmetry
JEL Classification: E43, C32, F36
Suggested Citation: Suggested Citation