The determinants of interest rates in European union countries

One of the problems that has raised the interest of economists is to know the determinants of interest rates. In the case of the European Union, the existence of some coordination in the area of economic policies and having to fulfill some nominal convergence criteria have opened new possibilities to this field of research. In this way, possible relations among interest rates, prices, and exchange rates have been studied. This forces us to consider, among other questions, the concept of purchasing power parity and uncovered interest rate differential. The goal of this paper is to show the influence that German interest rates might have over other European Union countries. We will start by showing the essential elements of the equations to be estimated. Then we will carry out the empirical analysis for the case of six European Union countries. (JEL E40, 040).