The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
This note examines interest rate linkages within the EMS. Cointegration tests suggest the existence of a long-run equilibrium relationship between German and other EMS interest rates. Bivariate VAR analysis finds that Granger-causality either stems from German to other European interest rates (Belgium, France, Spain, and the U.K.) or is bidirectional (Denmark and the Netherlands). When allowance is made for the influence of U.S. interest rates, the pattern of Granger causality is predominantly bidirectional.