Interpreting Cointegration in a Model of the Term Structure with Nonstationary Term Premia

摘要

This paper shows how to interpret the cointegration parameters in an analysis of the term structure if a cointegration rank smaller than the one predicted by the rational expectations hypothesis is found which is an empirically relevant case. In a simple model of the term structure it is demonstrated that the cointegration rank is reduced by the number of nonstationary factors which drive the term premia. Moreover, the space orthogonal to the cointegration space contains the weights of the factors on the yields. It may thus be called the factor space for which it is easier to find identifying restrictions than for the cointegration space. An application to the German term structure leads to sensible results. In addition to a nonstationary level factor that governs the overall interest rate level, a slope and a curvature factor are found that drive the interest rats via a nonstationary term premium.