Investigating Multiple Changes in Persistence in International Yields

Although better information about the dynamics of the yields on financial assets is decisive for both borrowers and lenders alike, it is not uncommon, in the literature, for researchers to employ standard unit-root tests to determine the extent of the persistence, and based on such results, treat the entire series as either stationary or non-stationary. In this paper, using weekly data of yields in four international markets – Canada, the UK, the US and the euro area – from March 1997 to October 2013, and employing an approach which allows us to identify regime switches between periods of I(0) versus I(1) behaviour, we provide empirical evidence for the realistic possibility that yields may, in fact, have changing persistence over time. Our results identify and compare, for each market and several maturities, the time variation properties in the dynamics of the yield curves. Some economic implications of our results are discussed.