This paper examines the temporal relationship between interest rates on Treasury securities ranging in maturity from three months to 30 years. We find strong empirical support that the seven Treasury rates selected are cointegrated, a conclusion that is insensitive to the normalization chosen. In particular, the hypothesis of noncointegration is rejeeted decisively regardless of the rate selected as the dependent variable in the cointegrating equation. To determine whether this information can be used to improve forecasts of Treasury rates, the seven rates are forecasted with a corresponding erroreorrection model that is shown to outperform an augmented VAR model that ignores the cointegration of the rates. The results are consistent with the belief that arbitrage limits the extent to which rates on different maturities of a given security diverge. In addition, the results confirm the appropriateness of imposing a common stochastic process for interest rates in equilibrium models of the term structure.

This paper provides a detailed examination of the cost imposed by thrift institutions resolved during the period 1980–1988. A simple model is presented to explain the cost of resolution. This model is tested empirically with a comprehensive data set that permits us to avoid some of the econometric problems present in earlier studies. The empirical evidence suggests that the model that explains resolution costs in the late 1980s is significantly different from the model for either the middle or early 1980s. This evidence is consistent with the changing nature of the thrift crisis and changes in the regulator's closure rule. Our econometric evidence, moreover, is consistent with the hypothesis that, for troubled institutions, tangible net worth systematically understates market-value net worth. In addition, the importance of including time effects as well as institution effects as determinants of the cost of resolution is revealed.

This paper provides a detailed examination of the cost imposed by thrift institutions resolved during the period 1980–1988. A simple model is presented to explain the cost of resolution. This model is tested empirically with a comprehensive data set that permits us to avoid some of the econometric problems present in earlier studies. The empirical evidence suggests that the model that explains resolution costs in the late 1980s is significantly different from the model for either the middle or early 1980s. This evidence is consistent with the changing nature of the thrift crisis and changes in the regulator's closure rule. Our econometric evidence, moreover, is consistent with the hypothesis that, for troubled institutions, tangible net worth systematically understates market‐value net worth. In addition, the importance of including time effects as well as institution effects as determinants of the cost of resolution is revealed.