Term structure linkages surrounding the Plaza and Louvre accords: Evidence from Euro-rates and long-memory components [An article from: Journal of Banking and Finance]

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Description:
Eurocurrency deposit rates for Germany, Japan, the UK and the US are used to investigate term structure linkages over the 1979-85 and 1986-01 periods. A single common trend drives the term structure in each country, with 1-month rates generally having little or no influence in setting the long-term trend. Cointegration and common factor analyses based on the intracurrency common factors suggest weaker integration of economic fundamentals following the Plaza Accord in 1986. However, using a 10-year moving window to examine the 1986-01 period, similar tests show that integration increased between the 1986-95 and 1988-97 periods, but declined again by 1992-01.