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Permanent Structural Change in the US Short-Term and Long-Term Interest Rates

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Author Info
Chew Lian Chua () (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)
Chin Nam Low (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)
Abstract

This paper uses a time-varying error correction model to examine the structural changes in the rate of adjustment to the long-run equilibrium and the cointegrating vector of the US short- and long-term interest rates. We show that agents’ expectations of interest rate movements vary according to policy changes as reflected by changes in the direction of movements of the underlying parameters.

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Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2007n22.

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Length: 13 pages
Date of creation: Aug 2007
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Handle: RePEc:iae:iaewps:wp2007n22

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  1. Heather M. Anderson & Chin Nam Low, 2004. "Random Walk Smooth Transition Autoregressive Models," Monash Econometrics and Business Statistics Working Papers 22/04, Monash University, Department of Econometrics and Business Statistics, revised May 2005. [Downloadable!]
  2. Kleibergen, Frank & Paap, Richard, 2006. "Generalized reduced rank tests using the singular value decomposition," Journal of Econometrics, Elsevier, vol. 133(1), pages 97-126, July. [Downloadable!] (restricted)
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  3. Kleibergen, Frank & Paap, Richard, 2002. "Priors, posteriors and bayes factors for a Bayesian analysis of cointegration," Journal of Econometrics, Elsevier, vol. 111(2), pages 223-249, December. [Downloadable!] (restricted)
  4. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December. [Downloadable!] (restricted)
  5. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January. [Downloadable!] (restricted)
  6. Campbell, John Y & Shiller, Robert J, 1987. "Cointegration and Tests of Present Value Models," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1062-88, October. [Downloadable!] (restricted)
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  7. Cuthbertson, Keith & Hayes, Simon & Nitzsche, Dirk, 1998. "Interest Rates in Germany and the UK: Cointegration and Error Correction Models," The Manchester School of Economic & Social Studies, Blackwell Publishing, vol. 66(1), pages 27-43, January.
  8. Stock, James H & Watson, Mark W, 1996. "Evidence on Structural Instability in Macroeconomic Time Series Relations," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(1), pages 11-30, January.
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  9. John Chao & Chaoshin Chiao, 1998. "Testing the Expectations Theory of the Term Structure of Interest Rates Using Model-Selection Methods," Studies in Nonlinear Dynamics & Econometrics, Berkeley Electronic Press, vol. 2(4), pages 115-131. [Downloadable!] (restricted)
  10. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254. [Downloadable!] (restricted)
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