# An empirical analysis of nonstationarity in a panel of interest rates with factors

An empirical analysis of nonstationarity in a panel of interest rates with factors This paper studies nonstationarities in a panel of Canadian and US interest rates of different maturities and risk. We focus on methods which model the cross‐sectional dependence within the panel as a linear dynamic factor model, and decompose our data into common and idiosyncratic components that we analyze in turn. Our results suggest the presence of a single nonstationary factor in our panel. Since some of the idiosyncratic components are stationary, we conclude that these series are cointegrated. Finally, the dominant factors can be interpreted as level and slope factors as in the term structure literature. Copyright © 2007 John Wiley & Sons, Ltd. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Applied Econometrics Wiley

# An empirical analysis of nonstationarity in a panel of interest rates with factors

Journal of Applied Econometrics, Volume 22 (2) – Mar 1, 2007
18 pages

/lp/wiley/an-empirical-analysis-of-nonstationarity-in-a-panel-of-interest-rates-kyd5cN8I5X
Publisher
Wiley
ISSN
0883-7252
eISSN
1099-1255
D.O.I.
10.1002/jae.931
Publisher site
See Article on Publisher Site

### Abstract

This paper studies nonstationarities in a panel of Canadian and US interest rates of different maturities and risk. We focus on methods which model the cross‐sectional dependence within the panel as a linear dynamic factor model, and decompose our data into common and idiosyncratic components that we analyze in turn. Our results suggest the presence of a single nonstationary factor in our panel. Since some of the idiosyncratic components are stationary, we conclude that these series are cointegrated. Finally, the dominant factors can be interpreted as level and slope factors as in the term structure literature. Copyright © 2007 John Wiley & Sons, Ltd.

### Journal

Journal of Applied EconometricsWiley

Published: Mar 1, 2007

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