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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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  • Mark J. Holmes

    ()
    (Department of Economics, Waikato University, New Zealand)

  • Jesús Otero

    ()
    (Facultad de Economía, Universidad del Rosario, Colombia)

  • Theodore Panagiotidis

    ()
    (Department of Economics, University of Macedonia, Greece; RCEA, Italy)

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 The Rimini Centre for Economic Analysis in its series Working Paper Series with number 34_10.

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Date of creation: Jan 2010
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Handle: RePEc:rim:rimwps:34_10

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

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