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The Spanish term structure of interest rates revisited: Cointegration with multiple structural breaks, 1974–2010

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  • Esteve, Vicente
  • Navarro-Ibáñez, Manuel
  • Prats, María A.

Abstract

In this paper we consider the possibility that a linear cointegrated regression model with multiple structural changes would provide a better empirical description of the Spanish term structure of interest rates. Our methodology is based on instability tests recently proposed in Kejriwal and Perron (2008, 2010) as well as the cointegration tests developed in Arai and Kurozumi (2007) and Kejriwal (2008). The results obtained are consistent with the existence of linear cointegration between the long and the short run Spanish interest rates. However, our empirical results also show that the cointegrating relationship has changed over time. In particular, the Kejriwal–Perron tests for testing multiple structural breaks in cointegrated regression models suggest a model of two regimes.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 25 (2013)
Issue (Month): C ()
Pages: 24-34

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Handle: RePEc:eee:reveco:v:25:y:2013:i:c:p:24-34

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Web page: http://www.elsevier.com/locate/inca/620165

Related research

Keywords: Term structure of interest rates; Cointegration; Multiple structural breaks;

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  1. Josep Lluís Carrion-i-Silvestre & Andreu Sansó, 2006. "Testing the Null of Cointegration with Structural Breaks," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(5), pages 623-646, October.
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Cited by:
  1. Fernandez-Perez, Adrian & Fernández-Rodríguez, Fernando & Sosvilla-Rivero, Simón, 2014. "The term structure of interest rates as predictor of stock returns: Evidence for the IBEX 35 during a bear market," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 21-33.

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