Long-run relations among the G-5 and G-7 equity markets: Evidence on the Plaza and Louvre Accords

Abstract

This paper examines the long-run relation between two systems of equity markets in the post Bretton Woods era. In particular, we examine whether central bank intervention as prescribed by the Plaza and Louvre Accords impacted the long-run relationships characterizing the system of G-5 and G-7 equity markets, respectively. Evidence suggests that both systems have been affected by exchange rate intervention. Specifically, results indicate that following each agreement the systems exhibit more cointegrating vectors, more rapid speeds of adjustment to the long-run equilibrium relationships and shorter half lives of disequilibrium errors.