Yield Curve as a Cointegrated System: Evidence from Australian Treasury Securities

Ram Bhar
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Ram Bhar: School of Banking and Finance, University of New South Wales

No 35, Working Paper Series from Finance Discipline Group, UTS Business School, University of Technology, Sydney

Abstract: This paper examines the structure of yield on Australian Treasury securities ranging in maturities from thirteen weeks to fifteen years using unit roots tests and cointegration tests. There is strong evidence to suggest that the six treasury securities considered, are cointegrated irrespective of which one is selected as the dependent variable in cointegration tests. Granger representation theorem is then applied to identify an error-correction model in forecasting Treasury security yield is compared with that of an augmented vector autoregression model (VAR). The forecast by the error-correction model shows 35% improvement in terms of root mean squared error (RMSE) relative to the VAR model.

Keywords: yield curve; unit roots; cointegration; error-correction (search for similar items in EconPapers)
Pages: 29 pages
Date: 1994-03-01
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Citations: View citations in EconPapers (3)

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