Uncovered Interest Rate Parity and Monetary Convergence of Potential EMU Accession Countries

Posted: 20 Jul 2017

See all articles by Oliver Holtemöller

Oliver Holtemöller

Halle Institute for Economic Research; Martin Luther University Halle-Wittenberg

Date Written: 2005

Abstract

This paper analyzes deviations from uncovered interest rate parity which are interpreted as indicator of the substitutability of currencies. Backward recursive statistical tests and error correction models are applied to study the co-movement of interest rates, and rolling regressions are used to study size and volatility of country specific risk premiums. In accordance to their degree of monetary integration with the Euro area, new EU members and accession countries are divided into three groups. Estonia and Lithuania seem to exhibit the highest degree of monetary integration with the Euro area.

Keywords: Cointegration, economic convergence, European monetary union, monetary integration, interest rate parity, risk premium

JEL Classification: C22, C32, F36, F41

Suggested Citation

Holtemöller, Oliver, Uncovered Interest Rate Parity and Monetary Convergence of Potential EMU Accession Countries (2005). International Economics and Economic Policy, Vol. 2, 2005, Available at SSRN: https://ssrn.com/abstract=3004402

Oliver Holtemöller (Contact Author)

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

Martin Luther University Halle-Wittenberg ( email )

Halle-Wittenberg, Sachsen-Anhalt
Germany

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