The 6 reference contexts in paper Christopher F. Baum, John Barkoulas (2001) “Dynamics of Intra-EMS Interest Rate Linkages” / RePEc:boc:bocoec:492

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    2183
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    A direct implication of the GDH is that the interest rates of other EMS member countries are cointegrated with the German interest rate, with the German interest rate playing the leading role. However, Karfakis and Moschos (1990), Katsimbris and Miller (1993),
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    Hassapis et al. (1999), and
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    Caporale et al. (1996), among others, report evidence that short-term interest rates in EMS countries are not cointegrated with the German interest rate.1 The absence of a common trend in the bivariate systems of EMS and German interest rates refutes the monetary-policy objectives of the EMS, and suggests the absence of convergence of European monetary policies.
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    3591
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    Katsimbris and Miller (1993) estimate trivariate error-correction models including the U.S. interest rate in the system and, based on Granger causality tests, report negative evidence for the GDH, finding that EMS interest rates respond to each other as well as to the U.S. interest rate.
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    Hassapis et al. (1999)
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    apply the Johansen cointegration methodology to systems of EMS interest rates extended to include the U.S. interest rate. They find that EMS interest rates are cointegrated with the U.S. interest rate but not with the German interest rate.2 They identify short-run intra-EMS linkages but, in most cases, they report that German interest rates are caused by, rather than cause, the interest rates of t
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    7679
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    Given the empirical evidence that the spot returns series t+1s−ts is a martingale-difference process (see, inter alia, Meese and Singleton (1982) and Baillie and Bollerslev (1989)), nonstationary exchange rate returns are unlikely. Therefore, nonstationary interest rate differentials should reflect nonstationary foreign exchange risk premia. In contrast to this prediction, studies by
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    Fama (1984),
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    Hansen and Hodrick (1980), Hodrick and Srivastava (1984), Korajczyk (1985), and Wolff (1987), among others, find evidence consistent with stationary time-varying currency risk premia.6 More recently, Shively (2000) provides emphatic evidence supportive of time-varying risk premia evolving as stationary processes in the post-Bretton Woods era.
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    7703
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    evidence that the spot returns series t+1s−ts is a martingale-difference process (see, inter alia, Meese and Singleton (1982) and Baillie and Bollerslev (1989)), nonstationary exchange rate returns are unlikely. Therefore, nonstationary interest rate differentials should reflect nonstationary foreign exchange risk premia. In contrast to this prediction, studies by Fama (1984), Hansen and
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    Hodrick (1980),
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    Hodrick and Srivastava (1984), Korajczyk (1985), and Wolff (1987), among others, find evidence consistent with stationary time-varying currency risk premia.6 More recently, Shively (2000) provides emphatic evidence supportive of time-varying risk premia evolving as stationary processes in the post-Bretton Woods era.
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    13916
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    In a targetzone regime, the interest rate differential can be written as it−t i*= Ett+1c−tc()+tEt+1x−tx(),(6) where tc is the central parity and tx is the proportionate deviation from the central parity. tx, informally referred to as the exchange rate within the band, is theoretically mean-reverting
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    (Krugman 1991) and
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    it empirically exhibits strong autocorrelation (Rose and Svensson 1995). Should the exchange rate within the band exhibit long memory, the interest rate spread may inherit such stochastic behavior. Fractionally differenced intra-EMS interest rate spreads could also possibly reflect the presence of strongly dependent risk premia of the EMS currencies relative to the Deutsche mark. 3.2 Estimation o
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  6. Start
    13991
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    In a targetzone regime, the interest rate differential can be written as it−t i*= Ett+1c−tc()+tEt+1x−tx(),(6) where tc is the central parity and tx is the proportionate deviation from the central parity. tx, informally referred to as the exchange rate within the band, is theoretically mean-reverting (Krugman 1991) and it empirically exhibits strong autocorrelation (Rose and
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    Svensson 1995).
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    Should the exchange rate within the band exhibit long memory, the interest rate spread may inherit such stochastic behavior. Fractionally differenced intra-EMS interest rate spreads could also possibly reflect the presence of strongly dependent risk premia of the EMS currencies relative to the Deutsche mark. 3.2 Estimation of the Fractional Error Correction Model The finding that the interest rat
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