The international transmission of US, Eurodollar and Asian dollar interest rates: Some empirical evidence

Abstract

The inter-relationship among US, Eurodollar and Asian dollar certificate of deposit (CD) rates for the period 1987–1996 is investigated using Johansen cointegration and the vector error correction model (VECM). Our results indicate that both in the long-run and short-run, there exists a feedback relationship among these three interest rates. Most importantly, in the sub-sample period of January 1992 to December 1996, the Asian dollar interest rate plays an important role in interest rates transmission. A result that emulates the fact that Singapore is becoming the centre of the Asian dollar market.