We use a dynamic multipath general-to-specific algorithm to capture structural instability in the link between euro area sovereign bond yield spreads against Germany and their underlying determinants over the period January 1999–August 2011. We offer new evidence suggesting a significant...

We test for real interest rate convergence in the EU25 area. Our contribution is twofold: first, we account for the previously overlooked effects of structural breaks on real interest rate differentials. Second, we test for convergence against the EMU average. For the majority of our sample...

We offer a detailed empirical investigation of the EMU sovereign-debt crisis. We find a marked shift in market pricing behaviour from a ‘convergence-trade’ model before August 2007 to one driven by macro-fundamentals and international risk thereafter. We find evidence of contagion effects,...

We model pre-euro Spanish monetary policy and use our findings to assess the compatibility of the interest rates set by the ECB since 1999 with Spanish macro-fundamentals. We find that in the 1990s Spain implemented successfully a monetary strategy tailored to its own domestic fundamentals; and...

We distinguish non-normality from non-linearity in G7 real exchange rate dynamics by correcting the critical values of the Kapetanios et al. [Kapetanios, G., Shin, Y., Snell, A., 2003. Testing for a unit root in the non-linear STAR framework. Journal of Econometrics, 112, 359-379] test for...

We argue that risk aversion driven by exchange-rate uncertainty causes a wedge between the domestic and foreign prices of a homogeneous good. We test our hypothesis using a unique micro-data set from a market with minimum imperfections. The empirical findings validate our hypothesis, as...