A cointegration analysis of Danish zero-coupon bond yields

This paper presents the results of a cointegration analysis of the term structure of interest rates, using newly-constructed yields on pure discount bonds from the Danish bond market in the period 1976 to 1991. Systems of interest rates of different maturity are analysed as a vector autoregressive system. Within this framework the cointegration implications of the expectations hypothesis are tested. The results are not unambiguous, but in general they favour the hypothesis that the Danish nominal term structure is driven by one common stochastic trend, and interest rate spreads are generally found to be stationary.

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