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Common trends and common cycles among interest rates of the G7-countries

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  • Lindenberg, Nannette
  • Westermann, Frank

Abstract

Both, from a macroeconomic modeling perspective, as well as for a policy point of view, there has recently been a renewed interest in the cyclical and long-run comovement of interest rates. In this paper we re-investigate the long- and short-run comovements in the G7-countries by conducting tests for cointegration, common serial correlation and codependence with nominal and real interest rates, using quarterly data from 1975 to 2010. Overall, we find only little evidence of comovements. Common trends are occasionally observed, but the majority of interest rates are not cointegrated. Although some evidence for codependence of higher order is found in the pre-Euro area sample, common cycles appear to exist only in rare cases. We argue that some earlier, more positive findings are difficult to reconcile due to differing assumptions about the underlying stochastic properties of interest rates. We conclude that they cannot be generalized for all interest rates, time periods, and reasonable alternative estimation procedures.

Suggested Citation

  • Lindenberg, Nannette & Westermann, Frank, 2012. "Common trends and common cycles among interest rates of the G7-countries," Journal of Macroeconomics, Elsevier, vol. 34(4), pages 1125-1140.
  • Handle: RePEc:eee:jmacro:v:34:y:2012:i:4:p:1125-1140
    DOI: 10.1016/j.jmacro.2012.06.006
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    Cited by:

    1. Bicu Andreea & Candelon Bertrand, 2012. "Government bond market dynamics and sovereign risk: systemic or idiosyncratic?," Research Memorandum 032, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    2. Subhani, Muhammad Imtiaz & Hasan, Syed Akif & Osman, Ms. Amber, 2012. "Do consumers buy bread and diamond with the same attachment?," MPRA Paper 45094, University Library of Munich, Germany.
    3. Luisanna Onnis & Patrizio Tirelli, 2015. "Shadow economy: Does it matter for money velocity?," Empirical Economics, Springer, vol. 49(3), pages 839-858, November.
    4. N. K. Kishor & H. A. Marfatia, 2013. "Does federal funds futures rate contain information about the treasury bill rate?," Applied Financial Economics, Taylor & Francis Journals, vol. 23(16), pages 1311-1324, August.
    5. Hasan, Syed Akif & Subhani, Muhammad Imtiaz & Osman, Mohammad, 2012. "Co-movements of consumption patterns of high and low involvement products," MPRA Paper 37659, University Library of Munich, Germany.

    More about this item

    Keywords

    Interest rates; Comovement; Cointegration; Serial correlation common feature; Codependence;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F30 - International Economics - - International Finance - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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