ISSN: 2222-6990
Open access
Based on time series model, the connection between term structures of interest
rate, financial and macroeconomic variables is explored for Malaysia from 1997Q1
to 2009Q2. The behavior of maturity spreads is examined in detail and regression
model is established using Ordinary Least Square (OLS) method. The findings show
that some macroeconomic variables do not have significant impact on maturity
spreads. The money supply affect maturity spread positively while current account
influence maturity spread negatively. The other variables, namely stock market
return, gross domestic product, industrial production index, inflation rate and trade
balance, have no relations with maturity spread. Future work should seek out the
effects of maturity spreads on macroeconomic conditions.
Ang, A. & Piazzesi, M. (2003). A no-arbitrage vector autoregression of term structure dynamics
with macroeconomic and latent variables. Journal of Monetary Economics, 50, 745–787.
Bernhardsen, T. (2000). The relationship between interest rate differentials and
macroeconomic variables: A panel data study for European countries. Journal of International
Money and Finance, 19, 289–308.
Boileau, M. & Normandin, M. (2008). Dynamics of the current account and interest
differentials. Journal of International Economics, 74, 35–52.Caporale, G. M. & Williams, G. (2002). Long-term nominal interest rates and domestic
fundamentals. Review of Financial Economics, 11, 119–130.
Carriero, A., Favero, C. A., Kaminska, I. (2006). Financial factors, macroeconomic information
and the Expectations Theory of the term structure of interest rates. Journal of Econometrics,
131, 339–358.
Cherif, M., & Kamoun, S. (2007). Term structure dynamic and macroeconomic fundamentals in
the Euro area. The International Journal of Finance, 19 (3). Dewachter, H., Lyrio, M. & Maes, K
(2006). A joint model for the term structure of interest rates and the macroeconomy. Journal of
Applied Econometrics, 20 (4), 439-462.
Diebold, F. X., Rudebusch G. D. & Aruoba S. B. (2006). The macroeconomy and the yield curve:
A dynamic latent factor approach. Journal of Econometrics, 131, 309–338.
Ghazali, N. A. and Low, S. W. (2002). The expectation hypothesis in emerging financial markets:
The case of Malaysia, Applied Economics, 34, 1147-1156.
Hordahl, P., Tristani, O. & Vestin, D. (2006). A joint econometric model of macroeconomic and
term-structure dynamics. Journal of Econometrics, 131, 405–444.
Kanczuk, F. (2004). Real interest rates and Brazilian business cycles. Review of Economic
Dynamics, 7, 436–455.
Kuo, S. H. & Enders, W. (2004). The term structure of Japanese interest rates: The equilibrium
spread with asymmetric dynamics. Journal of the Japanese and International Economies, 18(1),
84-98.
Longstaff, F.A. and Schwartz, E.S. (1992). Interest rate volatility and the term structure: A twofactor general equilibrium model. The Journal of Finance, 47(4), 1259-1282.
Longstaff, F.A. & Schwartz, E.S. (1995). A simple approach to valuating risky fixed and floating
rate debt. Journal of Finance, 50(3), 789-819.
Merton, R.C. (1974). On the pricing of corporate debt: The risk structure of interest rates.
Journal of Finance, 29(2), 449-470.
Mills, T. C. (2008). Exploring historical economic relationships: two and a half centuries of
British interest rates and inflation. Cliometrica, 2, 213–228.
Nielsen, C. M. (2006). The information content of the term structure of interest rates about
future inflation—an illustration of the importance of accounting for a iime-varying real interest
rate and inflation risk premium. The Manchester School Supplement, 1463–6786, 93–115.
Weymark, D.N. (2004). Economic structure, policy objectives, and optimal interest rate policy at
low inflation rates. North American Journal of Economics and Finance, 15, 25–51.
N/A
Copyright: © 2012 The Author(s)
Published by HRMARS (www.hrmars.com)
This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: http://creativecommons.org/licences/by/4.0/legalcode