An empirical study of Taiwan's bond market based on the nonlinear dynamic model

Chi-Wei Su

Applied Financial Economics, 2009, vol. 19, issue 7, 563-574

Abstract: This article examines long-run dynamic adjustments of the term structure of interest rates using Taiwan government bond interest with different maturities. This permits threshold and momentum-threshold adjustments to test for asymmetry in unit roots and cointegration. More specifically, we employ nonlinear methodology to investigate whether the term structure of interest rates is consistent with the expectation theory. The results support the expectation theory in the case of the term structure of interest rates with dynamic adjustment. Furthermore, we find solid evidence of the asymmetric price transmission effect among bonds with different maturities in both the short and long run, and we employ the asymmetry error-correction model to successfully capture dynamic adjustments of interest rates.

Date: 2009
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DOI: 10.1080/09603100802345405

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