Nonlinear equilibrium adjustment dynamics and predictability of the term structure of interest rates

Does the Term Structure of Interest Rates Hold True for East-Asian Countries? More Powerful Nonlinear Cointegration Tests

“…Empirical research on the EHTS of interest rates is luxuriant but far from unequivocal so far. In the related studies, the conventional linear model and threshold model are frequently employed to analyze the EHTS of interest rates, such as Shiller (1978a,1991b), Quiros-Romero and Sosvilla-Rivero (1997), Enders and Granger (1998), Camarero and Tamarit (2002), Sarno et al (2007), Suardi (2010), Esteve et al (2013) and Muzindutsi and Mposelwa (2021) et al Recently, a growing agreement has emerged that the EHTS of interest rates demonstrates nonlinear adjustment, for example, Bachmeier and Li (2002), Maki (2006), Haug and Siklos (2007), Sun and Lai-Lei (2012), Guney (2013), Huang and Wang (2014), Grisse (2015), Zhu and Rahman (2015), Cai and Wang (2017), Song et al (2017), Bekiros et al (2018), Liu et al (2020) and Mineo et al (2020) This empirical study enriches this line of research by evaluating whether the EHTS of interest rates holds true in a sample of seven East Asian nations, and whether the adjustment towards their equilibrium takes place in a nonlinear manner. Economic integration appears to be increasing in Asia, and Asia is now playing a significant role in the globe as well.…”