SHERP

Unstable Multiple Cointegration Relations in the Term Structure of Interest Rates

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Authors
Kang, Heejoon
Issue Date
2002
Publisher
Seoul Journal of Economics
Citation
Seoul Journal of Economics 15 (No. 1 2002): 32-54
Keywords
cointegration rank; Irreducible cointegration; maximum likelihood estimation
Abstract
Although the literature has theoretically shown that multiple cointegration relations are not uniquely defined, many empirical analyses report and make use of such multiple cointegrations. This paper shows that four long- maturity interest rates in the United States contain two common factors and cointegration rank is thus two. Multiple cointegration relations among four interest rates are unstable and sensitive to small changes in the number of observations. Through Monte Carlo sampling experiments, the nature and the extent of instability are established. Instead of multiple cointegration relations, stable irreducible cointegration relations among three interest rates are presented.
ISSN
1225-0279
Language
English
URI
http://hdl.handle.net/10371/1260
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College of Social Sciences (사회과학대학)Institute of Economics Research (경제연구소)Seoul Journal of EconomicsSeoul Journal of Economics vol.15(1) (Spring 2002)
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