Integration of LIBOR and Treasury bill yields over different monetary regimes

Causal linkages between US and Eurodollar interest rates: further evidence

“…Further analysis reveals that there exists bidirectional causality between the two rates over the period of 1993 to 2002 while unidirectional causality from Eurodollar rate to the US rate over the period of 1983 to 1991. These findings consistently lend support to the argument of increasing financial market integration since the early 1990s, which, however, contradicts some more recent studies (Mougoue and Wagster, 1997;Clinebell et al, 2000) but supports earlier ones (Swanson, 1987;Fung and Isberg, 1992). The findings of this study carry important implications.…”

“…Similarly, Clinebell et al (2000 found unidirectional causality running from the US interest rate to the offshore LIBOR rate under the regime of borrowed reserves targeting. Furthermore, both Mougoue and Wagster (1997) and Clinebell et al (2000) argued that the evidence of unidirectional causality running from the US interest rate to the offshore rate did not support the argument of increasing financial market integration over time.…”

“…Mougoue and Wagster, 1997;Clinebell et al, 2000) argued that US Federal *Corresponding author. E-mail: jiyang@pvamu.edu 1 A similar controversy exists in some studies involving nonUS markets.…”

“…First, we extend previous studies by investigating an additional 10-year sample period beyond the early 1990s. The study periods covered in recent studies (Mougoue and Wagster, 1997;Clinebell et al, 2000) typically end by the early 1990s when borrowed reserve targeting of the US Fed monetary policy prevailed. An extended analysis is warranted as the US Fed changed its operating procedure to federal funds rate targeting and eliminated the reserve requirement on Eurocurrency liabilities in the early 1990s (Urich and Wachtel, 2001;Cyree et al, 2003).…”