Economics at your fingertips  

Time Series Analysis of the US Term Structure of Interest Rates Using a Bayesian Markov Switching Cointegration Model

Katsuhiro Sugita

International Journal of Economics and Finance, 2017, vol. 9, issue 3, 49-56

Abstract: This paper examines the US term structure of interest rates using a Bayesian Markov switching cointegration model that allows the cointegrating vectors, the number of cointegrating rank, the risk premium, and other parameters to change when regime shifts. We find that for any pair of the interest rates there is a strong support for the cointegrating implication of the expectation hypothesis at least in a stable regime, while for some pairs of the interest rates the cointegration does not occur in a high volatility regime. We find that a Markov switching cointegration model captures regime shifts that are corresponding to high inflation regime. In high inflation regime, variance is much higher for both the long and short rates and adjustment toward equilibrium is much faster than those in the other regime.

Keywords: Bayesian; cointegration; markov-switching; term structure; expectations hypothesis (search for similar items in EconPapers)
JEL-codes: R00 Z0 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link) (application/pdf) (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

More articles in International Journal of Economics and Finance from Canadian Center of Science and Education Contact information at EDIRC.
Series data maintained by Canadian Center of Science and Education ().

Page updated 2017-09-29
Handle: RePEc:ibn:ijefaa:v:9:y:2017:i:3:p:49-56