The US dollar-euro exchange rate and US-EMU bond yield differentialsA causality analysis

  1. Sosvilla Rivero, Simón
  2. Ramos Herrera, María del Carmen
Aldizkaria:
Cuadernos de economía: Spanish Journal of Economics and Finance

ISSN: 2340-6704,  0210-0266

Argitalpen urtea: 2012

Alea: 35

Zenbakia: 98

Orrialdeak: 117-128

Mota: Artikulua

DOI: 10.1016/S0210-0266(12)70028-6 DIALNET GOOGLE SCHOLAR lock_openBiblos-e Archivo editor

Beste argitalpen batzuk: Cuadernos de economía: Spanish Journal of Economics and Finance

Laburpena

This paper tests for causality between the US dollar-euro exchange rate and US-EMU bond yield differentials. To that end, we apply Hsiao's (1981) sequential procedure to daily data covering the 1999¿2011 period. Our results suggest the existence of statistically significant Granger causality running one-way from bond yield differentials to the exchange rate, but not the other way round. The results do not change when using short-term interest rate differentials or when we examine the Japanese yen-euro exchange rate. Nevertheless, we detect bi-directional Granger causality between the pound sterling-euro exchange rate and the short-term interest rate differential between UK and EMU.

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The authors thank the editor, Nikolas Müller-Plantenberg, and two anonymous referees for useful comments and suggestions. We are also grateful for the financial support from the Spanish Ministry of Science and Innovation (ECO2011-23189). María del Carmen Ramos-Herrera also acknowledges her grant (F.P.U.) from the Spanish Ministry of Science and Innovation (Ref. AP2008-004015).

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