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A Semiparametric Analysis of the Term Structure of the US Interest Rates

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  • Fabrizio Iacone

Abstract

The short end of the US$ term structure of interest rates is analysed allowing for the possibility of fractional integration and cointegration. This approach permits mean-reverting dynamics for the data and the existence of a common long run stochastic trend to be maintained simultaneously. We estimate the model for the period 1963-2006 and find it compatible with this structure. The restriction that the data are "I"(1) and the errors are "I"(0) is rejected, mainly because the latter still display long memory. This result is consistent with a model of monetary policy in which the Central Bank operates affecting contracts with short term maturity, and the impulses are transmitted to contracts with longer maturities and then to the final goals. However, the transmission of the impulses along the term structure cannot be modelled using the Expectations Hypothesis. Copyright (c) Blackwell Publishing Ltd and the Department of Economics, University of Oxford, 2009.

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  • Fabrizio Iacone, 2009. "A Semiparametric Analysis of the Term Structure of the US Interest Rates," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(4), pages 475-490, August.
  • Handle: RePEc:bla:obuest:v:71:y:2009:i:4:p:475-490
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    Cited by:

    1. Dayong Zhang & Marco Barassi & Jijun Tan, 2015. "Residual-Based Tests for Fractional Cointegration: Testing the Term Structure of Interest Rates," Econometric Reviews, Taylor & Francis Journals, vol. 34(6-10), pages 1118-1140.
    2. Dechert, Andreas, 2014. "Fraktionale Kointegrationsbeziehungen zwischen Euribor-Zinssätzen," W.E.P. - Würzburg Economic Papers 93, University of Würzburg, Chair for Monetary Policy and International Economics.
    3. Daniela Osterrieder, 2013. "Interest Rates with Long Memory: A Generalized Affine Term-Structure Model," CREATES Research Papers 2013-17, Department of Economics and Business Economics, Aarhus University.
    4. Katarzyna Łasak & Carlos Velasco, 2015. "Fractional Cointegration Rank Estimation," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 33(2), pages 241-254, April.
    5. Adam Golinski & Peter Spencer, 2012. "The Meiselman forward interest rate revision regression as an Affine Term Structure Model," Discussion Papers 12/27, Department of Economics, University of York.
    6. Kuriyama Nina, 2016. "Testing cointegration in quantile regressions with an application to the term structure of interest rates," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 20(2), pages 107-121, April.
    7. repec:eee:jfinec:v:125:y:2017:i:1:p:163-181 is not listed on IDEAS
    8. Daniela Osterrieder & Peter C. Schotman, 2012. "The Volatility of Long-term Bond Returns: Persistent Interest Shocks and Time-varying Risk Premiums," CREATES Research Papers 2012-35, Department of Economics and Business Economics, Aarhus University.
    9. Dechert, Andreas, 2012. "Variance Ratio Testing for Fractional Cointegration in Presence of Trends and Trend Breaks," MPRA Paper 41044, University Library of Munich, Germany.

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