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Long-term interest rates in Europe: A fractional cointegration analysis

Author

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  • Caporale, Guglielmo Maria
  • Gil-Alana, Luis A.

Abstract

This paper uses fractional integration/cointegration techniques to examine the stochastic behaviour of long-term interest rates (on government securities with 10-year maturity) in 23 European countries as well as their long-run linkages on a pairwise basis over the period January 2001–February 2018. The results are mixed and sensitive to the (parametric and semi-parametric) estimation methods. Evidence is found for both unit roots and mean reversion in the series analysed. Various rates (especially in the case of smaller economies) appear to be fractionally cointegrated, but interestingly German, French and UK rates are not found to be linked to any other European rates.

Suggested Citation

  • Caporale, Guglielmo Maria & Gil-Alana, Luis A., 2019. "Long-term interest rates in Europe: A fractional cointegration analysis," International Review of Economics & Finance, Elsevier, vol. 61(C), pages 170-178.
    • Handle: RePEc:eee:reveco:v:61:y:2019:i:c:p:170-178
    DOI: 10.1016/j.iref.2019.02.004
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    Cited by:

    1. Yarovaya, Larisa & Matkovskyy, Roman & Jalan, Akanksha, 2022. "The COVID-19 black swan crisis: Reaction and recovery of various financial markets," Research in International Business and Finance, Elsevier, vol. 59(C).
    2. Curto, Domenico & Favuzza, Salvatore & Franzitta, Vincenzo & Guercio, Andrea & Amparo Navarro Navia, Milagros & Telaretti, Enrico & Zizzo, Gaetano, 2022. "Grid Stability Improvement Using Synthetic Inertia by Battery Energy Storage Systems in Small Islands," Energy, Elsevier, vol. 254(PC).
    3. OlaOluwa S. Yaya & Xuan Vinh Vo & Ahamuefula E. Ogbonna & Adeolu O. Adewuyi, 2022. "Modelling cryptocurrency high–low prices using fractional cointegrating VAR," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 489-505, January.

    More about this item

    Keywords

    Long-term interest rates; Fractional integration; Fractional cointegration;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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