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Structural breaks and the expectations hypothesis of the term structure: evidence from Central European countries

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Koukouritakis, Minoas

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Abstract The expectations hypothesis of the term structure of interest rates in the Czech Republic, Hungary, Poland and Slovakia, which joined the EU on May 2004, is investigated in this paper. Using VAR and cointegration techniques in the presence of structural breaks, I examine several testable implications of the theory: (i) cointegration of interest rates, (ii) spread stationarity, (iii) validity of the cross-equation restrictions implied by the theory and (iv) no excess volatility of the actual spread relative to the theoretical spread. The results support the expectations hypothesis for the Czech Republic and Hungary and reject it for Poland and Slovakia.
Classification Political Economy
Free Keywords Expectations hypothesis of the term structure; Structural breaks; Two-break LM unit root test; Cointegration with breaks; Theoretical spread; E43; F15; F42
Document language English
Publication Year 2009
Page/Pages p. 757-774
Journal Review of World Economics, 145 (2009) 4
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)