Testing linearity in term structures
AbstractThis article uses robust nonparametric techniques to investigate both crosssectional and dynamic properties of affine models, a popular framework to analyse Term Structures (TSs) of interest rates. The analysis shows the strong nonlinearity in the relationship of yields to the US and UK short rate. The nonlinear pattern is concave in the state variable, and increasing with respect to the maturity, for both countries. Linear and nonlinear specifications are then compared by means of a formal statistical criterion, the Generalized Likelihood-Ratio (GLR) test statistics, which confirms evidence against the linear specification.
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Bibliographic InfoArticle provided by Taylor and Francis Journals in its journal Applied Financial Economics.
Volume (Year): 22 (2012)
Issue (Month): 8 (April)
Contact details of provider:
Web page: http://www.tandf.co.uk/journals/routledge/09603107.html
Other versions of this item:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
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