 Nonstationarity, cointegration and structural breaks in the Australian term structure of interest ratesApplied Economics, 2010, vol. 42, issue 22, 2865-2879 Abstract: This article examines the unit-root property of the Australian short- and long-term interest rates using unit-root tests that accommodate a single or two breaks under the null and/or alternative hypothesis. Two breaks in interest rates are found to coincide with the 1982/83 and 1990/91 recessions or the 1993 inflation targeting period. We further investigate the implications of these structural breaks on the cointegrating relationship implied by the single, linear expectations hypothesis of the term structure of interest rates. While there is evidence that the data are consistent with the expectations hypothesis at the shorter end of the term structure, breaks in interest rates generate a shift in the cointegrating relationship, thus altering the information content of the term structure. Failing to account for a regime shift in the cointegration regression, the data erroneously supports the expectations hypothesis at the longer end of the term structure. These results have profound implications for policy makers who may inadequately exploit the information content of the term structure to predict future changes in inflation. Date: 2010 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:42:y:2010:i:22:p:2865-2879 Ordering information: This journal article can be ordered from DOI: 10.1080/00036840801964625 Access Statistics for this article Applied Economics is currently edited by Anita Phillips More articles in Applied Economics from Taylor & Francis Journals |
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