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On The Term Structure of South African Interest Rates: Cointegration and Threshold Adjustment

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  • Njindan Iyke, Bernard

Abstract

This paper explores the correlations of the short- and long-term interest rate series through time in South Africa. Two time series techniques are utilized: the Kapetanios et al. (2003) nonlinear STAR unit root test and the asymmetric cointegration with threshold adjustment test of Enders and Siklos (2001). We find the interest rate series (i.e. the SARB policy rate and the yield on long-term government bonds) to be cointegrated with fairly weak threshold adjustment. In addition, we find a distinct causal flow from the yield on long-term government bonds to the SARB policy rate with momentum equilibrium adjustment symmetry, indicating that linear error correction models may fit the yield curves in South Africa better.

Suggested Citation

  • Njindan Iyke, Bernard, 2015. "On The Term Structure of South African Interest Rates: Cointegration and Threshold Adjustment," MPRA Paper 67681, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:67681
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    More about this item

    Keywords

    Asymmetric Adjustment; Cointegration; Term Structure; Interest Rates; South Africa;

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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