Advanced Search
MyIDEAS: Login to save this article or follow this journal

Nonlinear adjustment in US bond yields: An empirical model with conditional heteroskedasticity

Contents:

Author Info

  • Lucchetti, Riccardo
  • Palomba, Giulio

Abstract

Starting from the work by Campbell and Shiller (Campbell, J.Y. and Shiller, R.J. (1987). Cointegration and tests of present value models. Journal of Political Economy, 95(5):1062-1088.), empirical analysis of interest rates has been conducted in the framework of cointegration. However, parts of this approach have been questioned recently, as the adjustment mechanism may not follow a simple linear rule; another line of criticism points out that stationarity of the spreads is difficult to maintain empirically. In this paper, we analyse data on US bond yields by means of an augmented VAR specification which approximates a generic nonlinear adjustment model. We argue that nonlinearity captures macro information via the shape of the yield curve and thus provides an alternative explanation for some findings that recently appeared in the literature. Moreover, we show how conditional heteroskedasticity can be taken into account via GARCH specifications for the conditional variance, either univariate or multivariate.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6VB1-4VP1CRH-1/2/292fa7841909fd63b6fec294aea03447
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 26 (2009)
Issue (Month): 3 (May)
Pages: 659-667

as in new window
Handle: RePEc:eee:ecmode:v:26:y:2009:i:3:p:659-667

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/30411

Related research

Keywords: Interest rates Cointegration Nonlinear adjustment Conditional heteroskedasticity;

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Balke, Nathan S & Fomby, Thomas B, 1997. "Threshold Cointegration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 627-45, August.
  2. Engle, Robert F & Ng, Victor K, 1993. " Measuring and Testing the Impact of News on Volatility," Journal of Finance, American Finance Association, vol. 48(5), pages 1749-78, December.
  3. Bollerslev, Tim & Engle, Robert F & Wooldridge, Jeffrey M, 1988. "A Capital Asset Pricing Model with Time-Varying Covariances," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 116-31, February.
  4. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
  5. Kilian, Lutz & Taylor, Mark P., 2003. "Why is it so difficult to beat the random walk forecast of exchange rates?," Journal of International Economics, Elsevier, vol. 60(1), pages 85-107, May.
  6. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
  7. Roy van der Weide, 2002. "GO-GARCH: a multivariate generalized orthogonal GARCH model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 17(5), pages 549-564.
  8. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-44, January.
  9. Shiqing Ling & W. K. Li & Michael McAleer, 2003. "Estimation and Testing for Unit Root Processes with GARCH (1, 1) Errors: Theory and Monte Carlo Evidence," CIRJE F-Series CIRJE-F-207, CIRJE, Faculty of Economics, University of Tokyo.
  10. Eric Ghysels & Andrew Harvey & Éric Renault, 1995. "Stochastic Volatility," CIRANO Working Papers 95s-49, CIRANO.
  11. Campbell, John & Shiller, Robert, 1987. "Cointegration and Tests of Present Value Models," Scholarly Articles 3122490, Harvard University Department of Economics.
  12. Riccardo LUCCHETTI, 1999. "Analytic Score for Multivariate GARCH Models," Working Papers 119, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  13. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July.
  14. Andrew Ang & Monika Piazzesi, 2001. "A No-Arbitrage Vector Autoregression of Term Structure Dynamics with Macroeconomic and Latent Variables," NBER Working Papers 8363, National Bureau of Economic Research, Inc.
  15. James G. MacKinnon, 1995. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Working Papers 918, Queen's University, Department of Economics.
  16. BAUWENS, Luc & LAURENT, Sébastien & ROMBOUTS, Jeroen, 2003. "Multivariate GARCH models: a survey," CORE Discussion Papers 2003031, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  17. Hansen, Bruce E. & Seo, Byeongseon, 2002. "Testing for two-regime threshold cointegration in vector error-correction models," Journal of Econometrics, Elsevier, vol. 110(2), pages 293-318, October.
  18. Andrews, Donald W K & Monahan, J Christopher, 1992. "An Improved Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimator," Econometrica, Econometric Society, vol. 60(4), pages 953-66, July.
  19. Lo, Ming Chien & Zivot, Eric, 2001. "Threshold Cointegration And Nonlinear Adjustment To The Law Of One Price," Macroeconomic Dynamics, Cambridge University Press, vol. 5(04), pages 533-576, September.
  20. Escribano, Alvaro, 2004. "Nonlinear Error Correction: The Case Of Money Demand In The United Kingdom (1878 2000)," Macroeconomic Dynamics, Cambridge University Press, vol. 8(01), pages 76-116, February.
  21. Jaya Krishnakumar & David Neto, 2005. "Partial Cointegration," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva 2005.04, Institut d'Economie et Econométrie, Université de Genève, revised Aug 2006.
  22. Daniel L. Thornton, 2005. "When did the FOMC begin targeting the federal funds rate? what the verbatim transcripts tell us," Working Papers 2004-015, Federal Reserve Bank of St. Louis.
  23. Lanne, Markku & Saikkonen, Pentti, 2005. "A Multivariate Generalized Orthogonal Factor GARCH Model," MPRA Paper 23714, University Library of Munich, Germany.
  24. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2003. "Testing for a unit root in the nonlinear STAR framework," Journal of Econometrics, Elsevier, vol. 112(2), pages 359-379, February.
  25. K. Balcombe, 2006. "Bayesian estimation of cointegrating thresholds in the term structure of interest rates," Empirical Economics, Springer, vol. 31(2), pages 277-289, June.
  26. Saikkonen, Pentti, 2005. "Stability results for nonlinear error correction models," Journal of Econometrics, Elsevier, vol. 127(1), pages 69-81, July.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. guo, Min & zhao, jizhi & huang, yixuan, 2014. "国家债务适度规模研究 —基于因子增强阈值模型
    [a Study of Moderate Scale of Public Debt - Based on Factor-Augmented Threshold Model]
    ," MPRA Paper 56067, University Library of Munich, Germany.
  2. Riccardo Lucchetti, 2009. "Who uses gretl? An Analysis of the SourceForge Download Data," EHUCHAPS, Universidad del País Vasco - Facultad de Ciencias Económicas y Empresariales.
  3. Stefano Puddu, 2013. "Real Sector and Banking System: Real and Feedback Effects. A Non-Linear VAR Approach," IRENE Working Papers 13-01, IRENE Institute of Economic Research.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:26:y:2009:i:3:p:659-667. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.