Co-integration and the Term Structure of Interest Rate in Germany

Shomaila Habib, salman sarwar

Abstract


A number of things can influence the interest rate, such as risk, liquidity and tax considerations (collectively embedded in the risk structure). Another factor that influences the interest rate on a bond is its term to maturity (short run and long run); bonds with identical risk, liquidity and tax characteristics may have different interest rates because the time remaining to maturity is different. A plot of the yields on bonds with differing terms to maturity but the same risk, liquidity and tax considerations is called a yield curve, and it describes the term structure of interest rates for particular types of bonds, such as government bonds. 


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References


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