This paper uses cointegration and common trends techniques to investigate empirically
the expectations hypothesis of the term structure of interest rates in the 10 new EU countries,
and the 2 core EMU countries, France and Germany. By decomposing each term structure
into its transitory and permanent components, we also analyze the possible short run and long
run linkages among the term structures of these countries. The empirical results support the
expectations theory of the term structure for all countries except Malta. Further, they point
to both weak short run linkages and several strong long run linkages among the monetary
policies of the 10 new EU and the core of the EMU. The group of the Central European
countries and Latvia are prominent in the latter case.
01/01/2005
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