THE LINKAGE OF INTEREST-RATES WITHIN THE EMS

The paper explores the linkage between interest rates in Germany and t he United States with those on other currencies within the Exchange Ra te Mechanism (ERM) of the European Monetary System. Monthly data on mo ney market interest rates and rolling window cointegration techniques are used. The principal findings are that during the early part of the sample period (1979-1995), there is widespread cointegration between both US and German interest rates and those on other currencies in the ERM; but during the later part of the sample, this ''worldwide'' link age disintegrates, cointegration between German acid other ERM interes t rates strengthening whilst that with the US disappears.