Convergence in Interest Rates and Inflation Rates Across Countries and Over Time |
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| Authors: | Pierre L. Siklos,& Mark E. Wohar |
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| Affiliation: | Mutual Group Financial Services Research Centre, Wilfrid Laurier University, 75 University Ave, Waterloo, Ontario, Canada N2L 3C5, and University of California, San Diego, 9500 Gilman Drive, La Julla CA 92093-0508,;University of Nebraksa—Omaha, CBA-512K, Omaha NE 68182 |
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| Abstract: | We examine the relationship between interest rates and inflation rates for 10 countries during the period 1974–95. We find evidence of a unique cointegrating relationship between nominal interest rates of European Monetary System (EMS) countries, the US and Canada, and the US, Germany, and Japan. No similar relationship is obtained between inflation rates with one exception, namely, that between the US and Canada. We interpret these results as convergence in inflation but not in interst rates. Hence, if interest rates represent an indicator of monetary policy, the countries considered have attempted to implement independent policies but not to an extent which produced divergent trends in inflation. |
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