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Interpreting the Term Structure of Interbank Rates in Hong Kong

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  • Stefan Gerlach

    (Hong Kong Monetary Authority)

Abstract

This paper studies the term structure of short-term interbank rates in Hong Kong. Principal components analysis suggests that the variation of the term structure can be largely attributed to two components which capture shifts in the level and slope of the yield curve. We find that term spreads contain no information about future short-term rates. The Expectations Hypothesis, which states that long-term rates depend on expected future short-term rates plus a constant term premium, is also soundly rejected by the data. However, we are unable to reject a modified version of the EH that incorporates timevarying term premia.

Suggested Citation

  • Stefan Gerlach, 2001. "Interpreting the Term Structure of Interbank Rates in Hong Kong," Working Papers 142001, Hong Kong Institute for Monetary Research.
  • Handle: RePEc:hkm:wpaper:142001
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    References listed on IDEAS

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    Cited by:

    1. Holmes, Mark J. & Otero, Jesús & Panagiotidis, Theodore, 2011. "The term structure of interest rates, the expectations hypothesis and international financial integration: Evidence from Asian economies," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 679-689, October.
    2. Tak-Kuen Siu & Wai-Ki Ching & Eric Fung & Michael Ng, 2005. "Extracting Information from Spot Interest Rates and Credit Ratings using Double Higher-Order Hidden Markov Models," Computational Economics, Springer;Society for Computational Economics, vol. 26(3), pages 69-102, November.
    3. Suzan Hol, 2006. "Determinants of long-term interest rates in the Scandinavian countries," Discussion Papers 469, Statistics Norway, Research Department.
    4. Tabak, Benjamin M. & Serra, Thiago R. & Cajueiro, Daniel O., 2009. "The expectation hypothesis of interest rates and network theory: The case of Brazil," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(7), pages 1137-1149.

    More about this item

    Keywords

    term structure of interest rates; expectations hypothesis; Hong Kong;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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