Non-linearities and persistence in US long-run interest rates

ABSTRACT

This note examines the stochastic behaviour of US monthly 10-year government bond yields. Specifically, it estimates a fractional integration model suitable to capture both persistence and non-linearities, these being two important properties of interest rates. Two series are analysed, one from Bloomberg including end-of-the-month values over the period January 1962-August 2020, the other from the ECB reporting average monthly values over the period January 1900-August 2020. The estimation results indicate that both are highly persistent and exhibit non-linearities, the latter being more pronounced in the case of the ECB series. Also, there is no conclusive evidence of the presence of structural breaks.

KEYWORDS:

• Long-term interest rates
• government bond yields
• fractional integration
• persistence
• non-linearities

JEL CLASSIFICATION:

• C22
• E43

Acknowledgments

Luis A. Gil-Alana gratefully acknowledges the financial support from the Ministerio de Economía y Competitividad (ECO2017-85503-R). Comments from the Editor and an anonymous reviewer are gratefully acknowledged.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by the Ministerio de Economía y Competitividad [ECO2017-85503-R].