DOMESTIC AND EUROCURRENCY YIELDS - ANY EXCHANGE-RATE LINK - EVIDENCE FROM A VAR MODEL

This paper examines the issue of the impact of domestic money markets on Eurocurrecy interest rates by taking into consideration the exchang e rate changes for the case of four countries, namely, the United Stat es, the United Kingdom, Germany, and Japan over the 1975-93 time perio d. Granger causality tests conclude that as regards cases where the ex change rate is allowed freely to float there exists mutual influence b etween domestic interest rates and Eurocurrency yields. By contrast, i n cases that the exchange rate is relatively fixed, it is the behavior of international money markets that determines the course of the dome stic money market. (C) Society for Policy Modeling, 1997