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The CCAPM meets Euro-interest rate persistence, 1960-2000

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  • Head, Allen C.
  • Smith, Gregor W.

Abstract

Euro-interest rates are well-known to be persistent, as are their differentials across countries for a given maturity. The international CCAPM implies that the rates are persistent because forecasts of national consumption growth or inflation are persistent too. We examine this prediction for a panel of countries. The standard CCAPM with power utility is augmented to allow for external habit, government consumption, and adaptive learning. In all cases, we find little evidence that the persistence in Euro-rates is consistent with the CCAPM.
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Suggested Citation

  • Head, Allen C. & Smith, Gregor W., 2003. "The CCAPM meets Euro-interest rate persistence, 1960-2000," Journal of International Economics, Elsevier, vol. 59(2), pages 349-366, March.
  • Handle: RePEc:eee:inecon:v:59:y:2003:i:2:p:349-366
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    References listed on IDEAS

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    Cited by:

    1. Juan Pedro Gomez, 2005. "An International Capm With Consumption Externalities And Non-Financial Wealth," Working Papers Economia wp05-08, Instituto de Empresa, Area of Economic Environment.

    More about this item

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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