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The Ccapm Meets Euro-interest Rate Persistence, 1960-2000

Author

Listed:
  • Allen Head

  • Gregor W. Smith

Abstract

Euro-interest rates are well-known to be persistent, as are their differentials across countriesfor a given maturity. The international CCAPM implies that the rates are persistent because forecasts of national consumption growth or inflation are persistent too. Weexamine 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.

Suggested Citation

  • Allen Head & Gregor W. Smith, 2002. "The Ccapm Meets Euro-interest Rate Persistence, 1960-2000," Working Paper 1250, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:1250
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    File URL: https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_1250.pdf
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    2. Huang, Kevin X.D. & Liu, Fengqi & Meng, Qinglai & Xue, Jianpo, 2022. "Keeping up with the Joneses and the consumption response to government spending," Economics Letters, Elsevier, vol. 220(C).

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    Keywords

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    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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    1. Canadian Macro Study Group

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