THE TERM STRUCTURE OF DANISH MONEY MARKET INTEREST-RATES

The term structure of Danish money market interest rates is analyzed for the period 1983-1993. The spread between 3- and 1-month money market rates significantly predict future interest rate changes in the direction implied by the classical expectations hypothesis, especially in periods with high interest rate volatility. Furthermore, evidence is found of long run one-way causality from German interest rates to Danish interest rates, which suggests that Danish monetary policy is dominated by German monetary policy in the long run.