DOES THE DM DOMINATE THE EURO MARKET - AN EMPIRICAL-INVESTIGATION

Starting point is the ''German Dominance Hypothesis,'' according to wh ich Germany has a dominant position within the EMS. This makes it impo ssible for other member countries to pursue their own monetary policie s. Using monthly data of three-month Euro market rates from 1980 to 19 88, for the U.S., Germany, the U.K., the Netherlands, France and Italy , we test this hypothesis in a multivariate cointegration framework. W e find that Germany has a strong position in Europe, which is not rest ricted to the EMS. Concerning long-run development, one might speak of a dominant position. However, there are short-run relations between E uropean countries which are not linked to relations with Germany.