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Linear and nonlinear Granger causality between short-term and long-term interest rates: a rolling-window strategy

Author

Listed:
  • Azadeh Rahimi
  • Ba M. Chu
  • Marc Lavoie

    (CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique, University of Ottawa [Ottawa])

Abstract

In this paper, a rolling window strategy is employed to detect the linear and nonlinear Granger causality relationships between the U.S. federal funds rate and the 10-year government bond rate, during different time horizons, investigating whether these causalities change with the passing of time. For linear Granger causality tests, we apply the Toda-Yamamoto (1995) approach and for nonlinear ones we use a nonlinear Granger causality test introduced by Diks and Panchenko (2006). Our findings show that during nearly all time periods there is a significant two-way Granger causality relationship between these two interest rates.

Suggested Citation

  • Azadeh Rahimi & Ba M. Chu & Marc Lavoie, 2017. "Linear and nonlinear Granger causality between short-term and long-term interest rates: a rolling-window strategy," Post-Print hal-01435721, HAL.
    • Handle: RePEc:hal:journl:hal-01435721
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    Cited by:

    1. Li, Shuping & Lu, Xinsheng & Li, Jianfeng, 2021. "Cross-correlations between the P2P interest rate, Shibor and treasury yields," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 574(C).
    2. Tanweer Akram, 2021. "Multifactor Keynesian Models of the Long-Term Interest Rate," Economics Working Paper Archive wp_991, Levy Economics Institute.
    3. Matteo Deleidi & Enrico Sergio Levrero, 2021. "Monetary policy and long‐term interest rates: Evidence from the U.S. economy," Metroeconomica, Wiley Blackwell, vol. 72(1), pages 121-147, February.
    4. Huiqing Li & Yang Su, 2021. "The nonlinear causal relationship between short‐ and long‐term interest rates: An empirical assessment of the United States, the United Kingdom, and Japan," International Finance, Wiley Blackwell, vol. 24(3), pages 332-355, December.
    5. Rahimi, Azadeh, 2019. "The Endogenous or Exogenous Nature of Money Supply: Case of Iran," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 14(1), pages 27-40, January.
    6. Levrero, Enrico Sergio & Deleidi, Matteo, 2019. "The causal relationship between short- and long-term interest rates: an empirical assessment of the United States," MPRA Paper 93608, University Library of Munich, Germany.

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