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Analysing one-month Euro-market interest rates by fractionally integrated models

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  • Emma Iglesias
  • Garry Phillips

Abstract

This article considers the modelling of short-term interest rates with the ARFIMA model in six European countries based on daily data in the 1990s using the Modified Profile Likelihood estimation method. This allows one to study the different convergence processes that have been followed in each case. Empirical evidence shows that, even with this estimation method, the standard AIC tends to select models that in some cases are in accordance with traditional inference but in other cases may not be so. Analysing these results, the series for Switzerland appears to be an I(1) series, which conflicts with the findings in previous literature.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/0960310042000293155
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 15 (2005)
Issue (Month): 2 ()
Pages: 95-106

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Handle: RePEc:taf:apfiec:v:15:y:2005:i:2:p:95-106

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References

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  1. Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "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?," Cowles Foundation Discussion Papers 979, Cowles Foundation for Research in Economics, Yale University.
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  4. Chung, Ching-Fan & Baillie, Richard T, 1993. "Small Sample Bias in Conditional Sum-of-Squares Estimators of Fractionally Integrated ARMA Models," Empirical Economics, Springer, vol. 18(4), pages 791-806.
  5. Baillie, Richard T & Chung, Ching-Fan & Tieslau, Margie A, 1996. "Analysing Inflation by the Fractionally Integrated ARFIMA-GARCH Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(1), pages 23-40, Jan.-Feb..
  6. Hauser, Michael A & Kunst, Robert M, 1998. " Fractionally Integrated Models with ARCH Errors: With an Application to the Swiss One-Month Euromarket Interest Rate," Review of Quantitative Finance and Accounting, Springer, vol. 10(1), pages 95-113, January.
  7. Granger, Clive W. J. & Ding, Zhuanxin, 1996. "Varieties of long memory models," Journal of Econometrics, Elsevier, vol. 73(1), pages 61-77, July.
  8. Diebold, Francis X. & Rudebusch, Glenn D., 1991. "On the power of Dickey-Fuller tests against fractional alternatives," Economics Letters, Elsevier, vol. 35(2), pages 155-160, February.
  9. Hassler, Uwe & Wolters, Jurgen, 1994. "On the power of unit root tests against fractional alternatives," Economics Letters, Elsevier, vol. 45(1), pages 1-5, May.
  10. Tony Smith & Fallaw Sowell & Stanley Zin, . "Fractional integration with Drift: Estimation in Small Samples," GSIA Working Papers 22, Carnegie Mellon University, Tepper School of Business.
  11. Karim M. Abadir & A. M. Robert Taylor, . "On the Definitions of (Co-)Integration," Discussion Papers 97/19, Department of Economics, University of York.
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  13. Baillie, Richard T. & King, Maxwell L., 1996. "Editors' introduction: Fractional differencing and long memory processes," Journal of Econometrics, Elsevier, vol. 73(1), pages 1-3, July.
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Cited by:
  1. Høg, Espen P. & Frederiksen, Per H., 2006. "The Fractional Ornstein-Uhlenbeck Process: Term Structure Theory and Application," Finance Research Group Working Papers F-2006-01, University of Aarhus, Aarhus School of Business, Department of Business Studies.
  2. Esben Hoeg & Per Frederiksen, 2006. "The Fractional OU Process: Term Structure Theory and Application," Computing in Economics and Finance 2006 194, Society for Computational Economics.
  3. Høg, Esben & Frederiksen, Per & Schiemert, Daniel, 2008. "On the Generalized Brownian Motion and its Applications in Finance," Finance Research Group Working Papers F-2008-07, University of Aarhus, Aarhus School of Business, Department of Business Studies.
  4. Cleomar Gomes da Silva & Flávio Vilela Vieira, 2014. "BRICS countries: real interest rates and long memory," Economics Bulletin, AccessEcon, vol. 34(1), pages 409-419.

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