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The term structure of interest rates, the expectations hypothesis and international financial integration: Evidence from Asian Economies

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Abstract

The validity of the expectations hypothesis of the term structure is examined for a sample of Asian countries. A panel stationarity testing procedure is employed that addresses both structural breaks and cross-sectional dependence. Asian term structures are found to be stationary and supportive of the expectations hypothesis. Further analysis suggests that international financial integration is associated with interdependencies between domestic and foreign term structures insofar as cross-term structures based on differentials between domestic (foreign) short- and foreign (domestic) long-rates are also stationary.

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Paper provided by Department of Economics, University of Macedonia in its series Discussion Paper Series with number 2010_18.

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Date of creation: Nov 2010
Date of revision: Nov 2009
Handle: RePEc:mcd:mcddps:2010_18

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Keywords: Heterogeneous dynamic panels; term structure; mean reversion; panel stationarity test;

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