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GEMF

Grupo de Estudos Monetários e Financeiros

Estudos do GEMF, N.º 02 de 1997

  

Co-Integration and VAR Analysis of the Term Structure of Interest Rates:

An Empirical Study of the Portuguese Money and Bond Markets


João Sousa Andrade

Faculdade de Economia, Universidade de Coimbra

José Soares da Fonseca
Faculdade de Economia, Universidade de Coimbra

Abstract:
In this paper we implement a co-integration and a VAR test, in order to explain the interdependence between a very short term interest rate of the Portuguese interbanking money market, and a long term rate of the Portuguese bond market. The first of these two tests shows that there exists co-integration of the first order, between the two interest rates. The VAR test shows that there exists a long run interdependence between these two variables.

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