, Volume 32, Issue 3, pp 144–151 | Cite as

Possible effects of EMU on German long-term interest rates

  • Carsten Hefeker
  • Mathias Moersch


It is often argued that long-term German bonds suffer from an inflation premium caused by EMU. A decomposition of long rates shows that factors besides inflationary expectations and conversion risk affect the long bond yield. The following paper therefore discusses a more complete set of channels through which currency union affects interest rates and argues that they do not all point in the direction of rising rates. Data generating processes for long-term bonds are specified and tested for structural breaks. Absence of a structural break is interpreted as evidence against a premium caused by EMU.


Exchange Rate Interest Rate Structural Break Risk Premium Real Interest Rate 
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Copyright information

© HWWA and Springer-Verlag 1997

Authors and Affiliations

  • Carsten Hefeker
    • 1
    • 2
  • Mathias Moersch
    • 1
    • 2
  1. 1.WWZUniversity of BasleSwitzerland
  2. 2.DG BankFrankfurt am MainGermany

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