The term structure of interest rates is often modelled as a cointegrated system with the yield spreads forming the cointegrating vectors. Testing whether the yield spreads span the cointegration space is problematic because conventional tests on the cointegration vectors tend to overreject when...

According to several empirical studies US inflation and nominal interest rates as well as the real interest rate can be described as unit root processes. These results imply that nominal interest rates and expected inflation do not move one-for-one in the long run, which is incongruent with...