This paper analyses the concept of Rational Expectations Equilibrium in a simple dynamic model of assets price determination and the important implications for the relative concept of informational efficiency.

Using a simple method, based on forward interest spreads, we analyse the recent movements in the 10-year yield differentials between three currencies (Italian lira; Spanish peseta; Swedish krona) and the DM in order to gauge the extent to which the reduction in these differentials was due to...