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Common trends and common cycles among interest rates of the G7-countries

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  • Lindenberg, Nannette
  • Westermann, Frank

Abstract

Both, from a macroeconomic modeling perspective, as well as for a policy point of view, there has recently been a renewed interest in the cyclical and long-run comovement of interest rates. In this paper we re-investigate the long- and short-run comovements in the G7-countries by conducting tests for cointegration, common serial correlation and codependence with nominal and real interest rates, using quarterly data from 1975 to 2010. Overall, we find only little evidence of comovements. Common trends are occasionally observed, but the majority of interest rates are not cointegrated. Although some evidence for codependence of higher order is found in the pre-Euro area sample, common cycles appear to exist only in rare cases. We argue that some earlier, more positive findings are difficult to reconcile due to differing assumptions about the underlying stochastic properties of interest rates. We conclude that they cannot be generalized for all interest rates, time periods, and reasonable alternative estimation procedures.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 34 (2012)
Issue (Month): 4 ()
Pages: 1125-1140

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Handle: RePEc:eee:jmacro:v:34:y:2012:i:4:p:1125-1140

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Web page: http://www.elsevier.com/locate/inca/622617

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Keywords: Interest rates; Comovement; Cointegration; Serial correlation common feature; Codependence;

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Cited by:
  1. Hasan, Dr. Syed Akif & Subhani, Muhammad Imtiaz & Osman, Mohammad, 2012. "Co-movements of consumption patterns of high and low involvement products," MPRA Paper 37659, University Library of Munich, Germany.
  2. Bicu Andreea & Candelon Bertrand, 2012. "Government bond market dynamics and sovereign risk: systemic or idiosyncratic?," Research Memorandum 032, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  3. Subhani, Muhammad Imtiaz & Hasan, Dr. Syed Akif & Osman, Ms. Amber, 2012. "Do consumers buy bread and diamond with the same attachment?," MPRA Paper 45094, University Library of Munich, Germany.

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