Modeling International Long-Term Interest Rates |
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Authors: | Ramon P DeGennaro Robert A Kunkel Junsoo Lee |
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Institution: | University of Tennessee, Knoxville, TN 37996-0540;Minot State University, Minot, ND 58707;Vanderbilt University, Nashville, TN 37235 |
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Abstract: | This study investigates the relationship among interest rates on the long-term government bonds of five industrialized countries. Both standard and new unit root tests are applied, all of which confirm the presence of exactly one unit root. New cointegration tests are also applied to these data. In contrast to previous research on short-term bonds, stock prices, and exchange rates, these results find little evidence of cointegration among the five long-term interest rate series. Thus, when modeling or forecasting these central government long-term bond yields, one may assume separate sets of fundamentals and difference the data to achieve stationarity. An error correction model may not be appropriate. |
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