Equal Size, Equal Role? Interest Rate Interdependence Between the Euro Area and the United States

This article investigates whether the degree of interdependence between the US and the euro area has changed with EMU by analysing the effects of monetary policy and macroeconomic news on daily interest rates in the two economies. The article finds a strongly increased interdependence of money markets around EMU. Spillover effects from the US to the euro area remain stronger than in the opposite direction, but US markets have started reacting to euro area developments. In recent years certain US macroeconomic news affect euro area money markets and have become good leading indicators for the euro area. Copyright 2005 Royal Economic Society.