THE DOMESTIC TERM STRUCTURE AND INTERNATIONAL INTEREST-RATE LINKAGES - A COINTEGRATION ANALYSIS

The Domestic Term Structure and International Interest Rate Linkages. A Cointegration Analysis. - This paper analyzes cointegration relation s between domestic interest rates with different maturities and betwee n the US- and German interest rates of the same maturity by means of t he Johansen procedure and single-equation error correction models. It analyzes also the implied common stochastic trends. The author conclud es that in the long run, interest spreads within both countries strong ly dominate and linkages between the interest rates of both countries are only important in the short run.