Statistical tests in vector autoregressive (VAR) models are typically based on large-sample approximations, involving the use of asymptotic distributions or bootstrap techniques. After documenting that such methods can be very misleading even with fairly large samples, especially when the number...

Understanding the dynamics of interest rates and the term structure has important implications for issues as diverse as real economic activity, monetary policy, pricing of interest rate derivative securities and public debt financing. Our paper follows a longstanding tradition of using factor...