Fractional Cointegration in US Term Spreads
AbstractThis note examines the stochastic properties of US term spreads with parametric and semi-parametric fractional integration techniques. Since the observed data (rather than the estimated residuals from a cointegrating regression) are used for the analysis, standard methods can be applied. The results indicate that US Treasury maturity rates are I(1) in most cases, although the order of integration decreases with maturity. Further, mean reversion occurs for the 5, 7 and 10 year rates as well as for several term spreads, suggesting that the expectation hypothesis of the term structure is satisfied empirically.
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Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 981.
Length: 8 p.
Date of creation: 2010
Date of revision:
Term structure; Long memory; Fractional integration; Fractional cointegration;
Other versions of this item:
- Guglielmo Maria Caporale & Luis Alberiko Gil-Alana, 2012. "Fractional cointegration in US term spreads," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 19(5), pages 431-434, March.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-03-20 (All new papers)
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