Regime shifts in the Danish term structure of interest rates

Tom Engsted () and Ken Nyholm ()
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Ken Nyholm: Department of Finance, Aarhus School of Business, Fuglesangs allÊ 4, DK-8210 Aarhus V., Denmark

Empirical Economics, 2000, vol. 25, issue 1, pages 1-13

Abstract: Within a bivariate VAR model allowing for two-state Markov regime switching we test and evaluate the Expectations Theory (ET) of the term structure using Danish 1- and 3-months interest rates covering the period 1976-1997. A regime-shift approach is used in order to account for the change in monetary policy and the 1992-93 exchange rate crises that occured during this period. The basic findings are that these episodes did change the term structure, and, although we do find departures from the ET, several of the implications of the theory are consistent with the data, especially in the later part of the sample.

Keywords: Expectations hypothesis; regime switching (search for similar items in EconPapers)
JEL-codes: C32 E43 (search for similar items in EconPapers)
Date: 2000-02-14
Note: received: June 1997/Final version received: March 1998
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