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Testing the expectations hypothesis for the Eurozone: A nonlinear cointegration analysis

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  • Araç, Ayşen
  • Yalta, A. Yasemin

Abstract

Most studies examining the expectations hypothesis (EH) of the term structure of interest rates assume that the adjustment process between short term and long term interest rates is linear. However, ignoring the possible nonlinearity between interest rates may result in misleading empirical results. In this paper, we investigate the term structure of interest rates for selected Eurozone countries using the nonlinear cointegration tests introduced by Kapetanios et al. (2006). Accounting for the effects of global financial and debt crisis, we find supportive evidence for the EH for Greece during the period covering the sovereign debt crisis.

Suggested Citation

  • Araç, Ayşen & Yalta, A. Yasemin, 2015. "Testing the expectations hypothesis for the Eurozone: A nonlinear cointegration analysis," Finance Research Letters, Elsevier, vol. 15(C), pages 41-48.
    • Handle: RePEc:eee:finlet:v:15:y:2015:i:c:p:41-48
    DOI: 10.1016/j.frl.2015.08.002
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    Cited by:

    1. Liu, Chih-Liang & Yang, Hsin-Feng, 2017. "Systemic risk in carry-trade portfolios," Finance Research Letters, Elsevier, vol. 20(C), pages 40-46.
    2. Bekiros, Stelios & Avdoulas, Christos & Hassapis, Christis, 2018. "Nonlinear equilibrium adjustment dynamics and predictability of the term structure of interest rates," International Review of Financial Analysis, Elsevier, vol. 55(C), pages 140-155.
    3. Valéria Halamová & Kristína Kočišová, 2018. "Premietanie medzibankových úrokových sadzieb do klientskych sadzieb na Slovensku (20042016) [Interbank Interest Rate Pass-Through into Client Interest Rates in the Condition of Slovak Republic (200," Politická ekonomie, Prague University of Economics and Business, vol. 2018(4), pages 473-490.
    4. Vides, José Carlos & Golpe, Antonio A. & Iglesias, Jesús, 2020. "The EHTS and the persistence in the spread reconsidered. A fractional cointegration approach," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 124-137.

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    More about this item

    Keywords

    Term structure of interest rates; Expectation hypothesis; Nonlinear cointegration; Eurozone; Greece;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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