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South Africa¡¯s Short and Long Term Interest Rates: A Threshold Cointegration Analysis

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  • Smile Dube
  • Yan Zhou

Abstract

This paper presents a two-regime vector error-correction model (VECM) with a single cointegrating vector and a threshold effect in the error-correction term. We use a Hansen-Seo (2002) algorithm to extract maximum likelihood estimates in eight threshold cointegration model s that relate short-term to long-term interest rates in South Africa for the period 1990M1-2010M7. We employ a SupLM test to test for the presence of threshold. The Hansen-Seo algorithm yields both linear and non-linear estimates plus critical values used to test threshold effects. The method is applied by relating the South Africa Reserve Bank policy rate, the repo (short-term) to intermediate (TB rate, money market rate) and long-term rates (the 10-year government bond, the loan and deposit rates). In all cases, linear cointegration is rejected in favor of a threshold effect.

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  • Smile Dube & Yan Zhou, 2013. "South Africa¡¯s Short and Long Term Interest Rates: A Threshold Cointegration Analysis," Business and Economic Research, Macrothink Institute, vol. 3(1), pages 187-211, June.
    • Handle: RePEc:mth:ber888:v:3:y:2013:i:1:p:187-211
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    Cited by:

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    2. Njindan Iyke, Bernard, 2015. "On The Term Structure of South African Interest Rates: Cointegration and Threshold Adjustment," MPRA Paper 67681, University Library of Munich, Germany.
    3. Johannes Peyavali Sheefeni Sheefeni & Teresia Kaulihowa, 2016. "Examining the Relationship between Term Structure of Interest Rates and Economic Activity in Namibia," International Journal of Economics and Financial Research, Academic Research Publishing Group, vol. 2(9), pages 161-168, 09-2016.
    4. Phiri, Andrew, 2017. "Has the South African Reserve Bank responded to equity prices since the sub-prime crisis? An asymmetric convergence approach," MPRA Paper 76542, University Library of Munich, Germany.
    5. Bosede Ngozi Adeleye & Michael Adusei & Olayinka Olohunlana & Opeyemi Akinyemi-Babajide & Arumugam Sankaran & Abdul Jamal, 2022. "Real deposit rate and credit supply nexus in ECOWAS," SN Business & Economics, Springer, vol. 2(2), pages 1-24, February.
    6. Njindan Iyke, Bernard, 2017. "Asymmetries in Yield Curves: Some Empirical Evidence from Ghana," MPRA Paper 79155, University Library of Munich, Germany.
    7. Bernard Njindan Iyke, 2017. "On the term structure of South African interest rates: cointegration and threshold adjustment," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 9(4), pages 300-321.
    8. Thomas Habanabakize & Paul-Francois Muzindutsi, 2017. "Analysis of Government Expenditure and Sectoral Employment in the Post-apartheid South Africa: Application of ARDL Model," Journal of Economics and Behavioral Studies, AMH International, vol. 9(2), pages 224-233.
    9. Emel Siklar & Ilyas Siklar, 2021. "Time Series Dynamics of Short Term Interest Rates in Turkey," Business and Economic Research, Macrothink Institute, vol. 11(1), pages 92-108, March.

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    More about this item

    Keywords

    Market interest rates; Threshold cointegration; SARB; Repo (repurchase rate);
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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