The Effect of Monetary Unification on German Bond Markets |
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| Authors: | Hans Dewachter Marco Lyrio Konstantijn Maes |
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| Institution: | Catholic University of Leuven and Erasmus University of Rotterdam, e‐mail:; Catholic University of Leuven e‐mail:; Catholic University of Leuven and National Bank of Belgium e‐mail: |
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| Abstract: | We develop a benchmark against which the effects of ECB monetary policy on the German bond market can be evaluated. We first estimate an affine term structure model for the pre‐EMU period linking the German yield curve with the Bundesbank monetary policy. The German monetary policy and its implied yield curve are then reprojected onto the EMU period. The reprojected yield curve differs significantly from the observed one. Short‐term interest rates during the EMU period are significantly lower than they would have been in case the Bundesbank were still in charge of monetary policy. Furthermore, yield spreads increased substantially during the EMU period. |
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| Keywords: | EMU ECB Bundesbank central bank monetary policy rule essentially affine term structure model |
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