Abstract
A study examines the role of inflation rates in the forecastability and dependence in the Eurocurrency market. Cointegration and vector autoregressive tests are performed to determine the channels of influence among 5 major Eurocurrency interest rate series at the nominal, monthly inflation adjusted and annual inflation adjusted levels. The evidence suggests that a lack of mean-reversion in both the nominal and real rate series. The evidence on integration is contingent on whether or nor the Eurocurrency series are adjusted for inflation. Some relationships not evident when employing nominal rates are found when employing the inflation adjusted rates. The evidence on nonstationary and cointegration properties of the nominal and real Eurocurrency rates suggests 2-tiered channel of influence among Eurocurrencies.