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Journals / Sosyoekonomi / 2015 / Cilt: 23 - Sayı: 26

Nonlinear Dynamics in Term Structure of Interest Rates: Evidence from the Euro Area

Ayşen ARAÇ
Pages
79–98
Publication Date
2015-10-14
DOI
—
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AI Summary & Key Takeaways

AI Insight
⚡ TL;DR(Too Long; Didn't Read)

Moreover, the findings suggest that nonlinear mean reversion effects of the cointegrating residuals increase with the maturity of interest rates.

📌 3 Key Takeaways

🎯
Objective & Hypothesis:The long run relationship between short term and long term interest rates has drawn much attention since European sovereign debt crisis in 2011-2012.
📊
Key Findings & Data:Motivated by this observation, this paper investigates the expectations hypothesis (EH) of term structure of interest rates in the euro area for the 2000:01-2014:04 period.
💡
Conclusion & Impact:Moreover, the findings suggest that nonlinear mean reversion effects of the cointegrating residuals increase with the maturity of interest rates.
🔬Design:Research Article
📍Scope:2011-2012 Verileri
⚙️Variables:Domain Parameters

Abstract

The long run relationship between short term and long term interest rates has drawn much attention since European sovereign debt crisis in 2011-2012. Motivated by this observation, this paper investigates the expectations hypothesis (EH) of term structure of interest rates in the euro area for the 2000:01-2014:04 period. By using the nonlinear cointegration approach developed by Kapetanios et al. (2006), we find that the long run relationship between long term and short term interest rates is stable with nonlinear adjustment. Our results provide evidence in favour of the EH. Moreover, the findings suggest that nonlinear mean reversion effects of the cointegrating residuals increase with the maturity of interest rates.

Özet

The long run relationship between short term and long term interest rates has drawn much attention since European sovereign debt crisis in 2011-2012. Motivated by this observation, this paper investigates the expectations hypothesis (EH) of term structure of interest rates in the euro area for the 2000:01-2014:04 period. By using the nonlinear cointegration approach developed by Kapetanios et al. (2006), we find that the long run relationship between long term and short term interest rates is stable with nonlinear adjustment. Our results provide evidence in favour of the EH. Moreover, the findings suggest that nonlinear mean reversion effects of the cointegrating residuals increase with the maturity of interest rates.

🔖

Cite This Article

ARAÇ, A. (2015). Nonlinear Dynamics in Term Structure of Interest Rates: Evidence from the Euro Area. Sosyoekonomi, Cilt: 23 - Sayı: 26, 79–98. https://ajindex.com/articles/139523

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