TRANSMISSION OF UNITED-STATES MONETARY-POLICY TO EUROPE AND ASYMMETRY IN THE EUROPEAN MONETARY-SYSTEM

This paper deals with the issues of the transmission of interest rates changes from the United States to Europe and of the degree of asymmetry of the European Monetary System, i.e of the extent of German leadership in determining the monetary policy of the EMS zone. If the transmission from the U.S. and the asymmetry of the EMS are strong, countries like France have almost no degree of freedom since both the short-term and long-term interest rates result from foreign influences and policies. The authors try to answer those questions by estimating a model for the determination of the short-term and long-term interest rates in France and Germany and of the DM/$ exchange rate. It appears that the assumption of asymmetrical functioning of the EMS is confirmed, that the dependence of long-term rates on short-term rates is weak in European countries and that the overall impact of changes in U.S. interest rates on European rates is limited. © 1991.