Interest Rates in Germany and the UK: Cointegration and Error Correction Models
AbstractThe authors test the expectations hypothesis (EH) of the term structure using U.K. and German weekly data on short dated instruments with maturities up to one year. For both data sets comprising k interest rates the authors find that the rank of the cointegrating space is (k - 1); but they can only accept that the cointegrating parameter estimates are of the form (-1, 1, 0,...) etc. when considering bilateral combinations of interest rates. When the authors test the joint null that the set of (k - 1) spreads forms a basis for the cointegration space, this is rejected. However, the point estimates of the cointegration parameters are close to unity and there is no diminution in outside sample forecasting performance of the ECM equations when the spread restrictions are imposed. On balance, one might conclude that the EH is not grossly at variance with the data. Copyright 1998 by Blackwell Publishers Ltd and The Victoria University of Manchester
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Bibliographic InfoArticle provided by University of Manchester in its journal The Manchester School of Economic & Social Studies.
Volume (Year): 66 (1998)
Issue (Month): 1 (January)
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- Chew Lian Chua & Chin Nam Low, 2007. "Permanent Structural Change in the US Short-Term and Long-Term Interest Rates," Melbourne Institute Working Paper Series wp2007n22, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
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