An\'alisis de cointegraci\'on con una aplicaci\'on al mercado de deuda en Estados Unidos, Canad\'a y M\'exico

TL;DR

This paper revises vector autoregression (VAR) theory, derives an error correction model, and applies cointegration analysis to government bond interest rates in the US, Canada, and Mexico to identify long-term economic drivers.

Contribution

It introduces a detailed derivation of the error correction VAR model and applies cointegration analysis to cross-country bond markets, highlighting long-term relationships.

Findings

Identification of long-term common factors influencing bond rates

Determination of which interest rates drive the system

Application of Johansen's method to regional bond markets

Abstract

Certain theoretical aspects of vector autoregression (VAR) as tools to model economic time series are revised, in particular their capacity to include both short term and long term information. The VAR model, in its error correction form, is derived and the permanent-transitory decomposition of factors proposed by Gonzalo and Granger (1995) studied. An introductory exposition of estimation theory for reduced rank models, necessary to estimate the error correction model, is given. Cointegration analysis using the VAR model is carried out for government bond interest rates (short, medium and long term) of the United States, Mexico and Canada, with the objective of finding the long-term common factors that drive the system. The error correction model of this system is estimated using Johansen's method. Using this estimation the permanent-transitory decomposition of the system is calculated. Hypothesis tests are carried out on permanent factors to determine which of the nine rates studied drive the system.