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Interest Parity, Cointegration, and the Term Structure in Canada and the United States

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  • Paul Boothe
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    Abstract

    In this paper, the author uses a simple but powerful technique to examine two models of the term structure for an open economy. Cointegration tests using two data sets for Canada and the United States support the open economy model based on uncovered interest parity as an explanation for the Canadian term structure of interest rates. Support for the generalized-present-value model is, at best, mixed. This lack of support may be attributable to low test power due to the author's smaller sample or to differences in the periods examined.

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    Bibliographic Info

    Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

    Volume (Year): 24 (1991)
    Issue (Month): 3 (August)
    Pages: 595-603

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    Handle: RePEc:cje:issued:v:24:y:1991:i:3:p:595-603

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    Cited by:
    1. Kathlyn Lucia & Stephanie Price & Edwin Wong & Richard Startz, 2008. "The Changing Relation Between the Canadian and U.S. Yield Curves," Working Papers UWEC-2008-05, University of Washington, Department of Economics.
    2. Antoine Bouveret, 2010. "Politiques économiques, dynamique et équilibre de long terme du taux de change," Sciences Po publications info:hdl:2441/53r60a8s3ku, Sciences Po.
    3. Darrat, Ali F. & Al-Mutawa, Ahmed & Benkato, Omar M., 1996. "On currency substitution and money demand instability," International Review of Economics & Finance, Elsevier, vol. 5(3), pages 321-334.
    4. repec:spo:wpecon:info:hdl:2441/53r60a8s3kup1vc9kd52ge69h is not listed on IDEAS
    5. Holmes, Mark J. & Otero, Jesús & Panagiotidis, Theodore, 2011. "The term structure of interest rates, the expectations hypothesis and international financial integration: Evidence from Asian economies," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 679-689, October.
    6. Meredith Beechey & Erik Hjalmarsson & Par Osterholm, 2008. "Testing the expectations hypothesis when interest rates are near integrated," International Finance Discussion Papers 953, Board of Governors of the Federal Reserve System (U.S.).
    7. Fung, Ben & Mitnick, Scott & Remolona, Eli, 1999. "Uncovering Inflation Expectations and Risk Premiums From Internationally Integrated Financial Markets," Working Papers 99-6, Bank of Canada.
    8. Anoruo, Emmanuel & Ramchander, Sanjay & Thiewes, Harold F., 2002. "International linkage of interest rates: Evidence from the emerging economies of Asia," Global Finance Journal, Elsevier, vol. 13(2), pages 217-235.
    9. Chiang, Thomas C. & Kim, Doseong, 2000. "Short-term eurocurrency rate behavior and specifications of cointegrating processes," International Review of Economics & Finance, Elsevier, vol. 9(2), pages 157-179.

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