On the term structure of South African interest rates: cointegration and threshold adjustment

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Abstract

This paper explores the correlations of the short- and long-term interest rates through time in South Africa. Two time series techniques are utilised: the Kapetanios et al. (2003) nonlinear STAR unit root test and the asymmetric cointegration with threshold adjustment test of Enders and Siklos (2001). We find the interest rates (i.e., the SARB policy rate and the yield on long-term government bonds) to be cointegrated with fairly weak threshold adjustment. In addition, we find a distinct causal flow from the yield on long-term government bonds to the SARB policy rate with momentum equilibrium adjustment symmetry, indicating that linear error correction models may fit the yield curves in South Africa better.

Original languageEnglish
Pages (from-to)300-321
Number of pages22
JournalInternational Journal of Sustainable Economy
Volume9
Issue number4
DOIs
Publication statusPublished - 2017
Externally publishedYes

Keywords

  • Asymmetric adjustment
  • Cointegration
  • Interest rates
  • South Africa
  • Term structure

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