What happened to the transatlantic capital market relations?

► The UIP-implied long-run relation between European and US bond yields breaks down in the 1990s. ► However, trivariate cointegration emerges comprising the interest rates and the exchange rate. ► The additional common stochastic trend can be explained by central bank reactions. ► Unfinished learning with regard to the strength of the euro provides a second rationale. ► US capital market dominance is strikingly reduced.