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

Authors: Bernard Njindan Iyke

Addresses: Department of Finance, Deakin University, 221 Burwood Highway, Melbourne, Australia

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.

Keywords: asymmetric adjustment; cointegration; term structure; interest rates; South Africa.

DOI: 10.1504/IJSE.2017.087061

International Journal of Sustainable Economy, 2017 Vol.9 No.4, pp.300 - 321

Received: 13 Sep 2016
Accepted: 18 Feb 2017

Published online: 05 Oct 2017 *

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