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Linear and nonlinear Granger causality between short-term and long-term interest rates: a rolling-window strategy

Azadeh Rahimi, Ba Chu and Marc Lavoie

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Abstract: In this paper, a rolling window strategy is employed to detect the linear and nonlinear Granger causality relationships between the U.S. federal funds rate and the 10-year government bond rate, during different time horizons, investigating whether these causalities change with the passing of time. For linear Granger causality tests, we apply the Toda-Yamamoto (1995) approach and for nonlinear ones we use a nonlinear Granger causality test introduced by Diks and Panchenko (2006). Our findings show that during nearly all time periods there is a significant two-way Granger causality relationship between these two interest rates.

Keywords: Short-term interest rate; Long-term interest rates; Granger causality; Rolling window strategy (search for similar items in EconPapers)
Date: 2017
Note: View the original document on HAL open archive server: https://hal-univ-paris13.archives-ouvertes.fr/hal-01435721
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Published in Metroeconomica, Wiley, 2017

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