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Integration in the EU wheat and barley markets is studied using monthly price series for the 1980-1994 period. The methodology expands previous work on cointegration modeling by testing market integration constraints on the cointegration space; these tests are also supplemented with an evaluation of the short-run dynamics by testing for causality and calculating forecast-error variance decompositions. This adds to previous work which has suggested that cointegra-tion is a necessary but not sufficient condition for market integration. Results are consistent with the self-sufficiency nature of cereal markets in the EU. Prices appear to follow each other in the long-run with more than one stochastic trend. France exerts a leadership in cereal prices as a result of being the main exporter.

The presence of co-integration between interest rates and inflation implies the existence of an error-correction model and the possibility of two sources of causation. Causality testing which does not account for feedback through the error-correction mechanism as well as through the error-correction mechanism as well as through the lagged changes in the variables can produce misleading reuslts. Reinterpreting Atkin' error-correction model and causality tests in this framework points to a feedback relationship between inflation and post-tax nominal interest rates. These findings are consistent with previously published results but are in contrast to Atkinsapos; conclusion of one-way causality from inflation to interest rates.