Cointegration and Regime-Switching Risk Premia in the U.S. Term Structure of Interest Rates

Arbeitspapier

To date the cointegrating properties and the regime-switching behavior of the term structure are two separate strands of the literature. This paper integrates these lines of research and introduces regime shifts into a cointegrated VAR model. We argue that the short run dynamics of the cointegrated model are likely to shift across regimes while the equilibrium relation implied by the expectations hypothesis of the term structure is robust to regime shifts. A Markov-switching VECM approach for U.S. data outperforms a linear VECM. Moreover, the regime shifts in the risk premium and the equilibrium adjustment reflect shifts in monetary policy.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bonn Econ Discussion Papers ; No. 27/2003

Classification and Topics

• Classification: Wirtschaft ; Monetary Policy ; Interest Rates: Determination, Term Structure, and Effects
• Subject: term structure ; expectations hypothesis ; cointegration ; Markov-switching ; monetary policy ; Zinsstruktur ; Zinsstrukturtheorie ; Risikoprämie ; Kointegration ; VAR-Modell ; Schätzung ; Vereinigte Staaten ; Markov switching

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Tillmann, Peter
• Event: Veröffentlichung
• (who): University of Bonn, Bonn Graduate School of Economics (BGSE)
• (where): Bonn
• (when): 2003

Further information

• Handle: http://hdl.handle.net/10419/22875
• Last update: 10.03.2025, 11:42 AM CET