Resource title

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

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Resource description

To date the cointegrating properties and the regimeswitching 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.

Resource author

Peter Tillmann

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Resource publish date

Resource language

eng

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text/html

Resource resource URL

http://hdl.handle.net/10419/22875

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Adapt according to the presented license agreement and reference the original author.