The long-range dependence behavior ofthe term structure ofinterest rates in Japan

Abstract

This paper presents an empirical evidence suggesting that Japanese interest rates for different maturities possess long-range dependence in both mean and volatility. For long-term bonds, predictability in the term structure ofinterest rates increases with maturity, suggesting that there exists a term premium. Furthermore, the dynamics ofshort-term interest rates (6 months) is very different from longer term bonds, as the former are anti-persistent, which implies that the zero-interest rate policy is perceived to be temporary.