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Time Series Analysis of the Expectations Hypothesis for the Japanese Term Structure of Interest Rates in the Presence of Multiple Structural Breaks

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Author Info
Sugita, Katsuhiro
Abstract

This paper investigates the expectations hypothesis for the Japanese term structure of interest rates using vector error correction models with multiple structural breaks, focusing on how the breaks affect volatility, risk premium and speed of the adjustment toward the equilibrium. Using 1985-2005 data, we find strong evidence of three structural changes. After the second break point, the term structure relationship is found to be weakened with nearly zero percent short-term interest rate. This finding is consistent with the expectations hypothesis since with very low short-term interest rate the risk premium is dominant in determining long rates.

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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/16983/1/070econDP06-15.pdf
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Publisher Info
Paper provided by Graduate School of Economics, Hitotsubashi University in its series Discussion Papers with number 2006-15.

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Length: 31 p.
Date of creation: Nov 2006
Date of revision:
Handle: RePEc:hit:econdp:2006-15

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Web page: http://www.econ.hit-u.ac.jp/
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Related research
Keywords: Term structure; Structural break; Cointegration; Bayesian inference; Gibbs sampling; Bayes factor;

Find related papers by JEL classification:
C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates

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This page was last updated on 2009-12-20.

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