MODELLING THE GERMAN YIELD CURVE AND TESTING THE LUCAS CRITIQUE, 1975-2001

Carlos Santos () and Maria Alberta OLIVEIRA

Applied Econometrics and International Development, 2007, vol. 7, issue 1

Abstract: In this paper, we build a model for the yield curve in Germany, from 1975 to 2001, and use it to test the Lucas Critique. We provide a first application of the new general-to-specific automatic model selection algorithm embodied in PcGets to term structure odeling, and use new super exogeneity tests.. Super exogeneity is rejected, so the model is vulnerable to the Lucas Critique. Inflation was not retained in the model selected for the spread, suggesting that inflation expectations are not relevant (for the short maturities considered) to forward interest rate movements.

Keywords: Super exogeneity; Lucas Critique; Term Structure; General-to-Specific (search for similar items in EconPapers)
JEL-codes: E43 C12 C22 C51 (search for similar items in EconPapers)
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