testing the expectations hypothesis of the term structure of interest rates in brics countries: a multivariate co-integration approach
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ID: 144381
2016
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Abstract
The BRICS is a group of major emerging economies in the world which have combined
financial resources to form the New Development Bank in an effort to address economic challenges
faced by these countries. Thus, the flow of funds among the BRICS countries are expected to increase
and this has implication on interest rates changes in these countries. Employing monthly short and
long term interest rates from June 2005 to June 2015, this study used a multivariate cointegration
approach to test for the validity of the expectations hypothesis (EH) of the term structure of interest
rates in BRICS countries. The results of the co-integration analysis revealed that the EH only holds in
three of the five countries, namely China, India, and South Africa. Short and long term interest rates
for these three countries converge to the long-run equilibrium at different speed, where the
convergence was found to be quick in South Africa and slow in China. This study found no evidence
of EH in Brazil and Russia. Findings of this study are relevant to current developments within BRICS
financial markets and provide valuable information that can be used to forecast future changes in
interest rates in BRICS countries.
| Reference Key |
muzindutsi2016actatesting
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|---|---|
| Authors | ;Paul Francois Muzindutsi;Sinethemba Mposelwa |
| Journal | organic process research and development |
| Year | 2016 |
| DOI |
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