Abstract:
The paper tests for long-run monetary policy convergence and short-run
policy interactions in seven ERM countries over the 1979-1992 period using
the approach of multivariate cointegration and Granger-causality tests. We
provide evidence for very little monetary policy convergence, even during
the more stable 1987-1992 period. Our tests for short-run monetary policy
interactions show that, in agreement with some other studies, Germany is
not the leader country in the system as it appears to accommodate shocks
in other member countries. Our tests show also that full monetary policy
convergence applied among Germany, Belgium and Netherlands in the
1987-1992 period implying that these countries could be the first to join a
European monetary union should a two-speed approach to monetary union
become a reality.
