Common change-points in long-term UK bond yields, 1870–1914: a piecewise linear trends approach

Abstract

This article estimates common structural breaks among four long-term UK bond yields, which shared a V-shaped trending behaviour during the sample period of 1870 to 1914. By applying the new inference procedure proposed by Qu and Perron (2007) for structural breaks in multivariate regressions, we find that the four bond yields had six common change-points and that the estimated common piecewise linear trend well represents their long-run movements.

Keywords:

• common change-points
• piecewise linear trends
• bond yields
• structural breaks

JEL Classification:

• C32
• G12
• N23

Acknowledgements

I would like to thank Zhongjun Qu and Pierre Perron for making available their GAUSS procedure for multiple breaks in multivariate regressions and Jan Klovland for providing me with the long-term UK bond yields studied here.

Notes

¹ According to the annual index of UK financial conditions compiled by Bordo et al. (2003), the years of 1876, 1888, 1892 and 1898 were normal, and the years of 1881 and 1906 featured moderate expansion.