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Mean reversion of short-run interest rates: empirical evidence from new EU countries

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  • Carlos P. Barros
  • Luis Gil-Alana
  • Roman Matousek

Abstract

This article deals with the analysis of the mean reversion property of short-term interest rates in Central and Eastern European countries, using daily data from January 2000 to December 2008. For this purpose, we use long memory (fractionally integrated) models, and employ non-parametric, semi-parametric and parametric techniques to check if our results are robust across different methods. The results indicate that the mean reversion only takes place in the case of Hungary. For the remaining countries, the short-term interest rates are clearly non-stationary and non-mean reverting. Allowing for one break in the data, the break date takes place about 2001/2003 in all the series except in Lithuania, where the break occurs in 2007. In general, we observe an increase in the degree of dependence after the break in the majority of the series.

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File URL: http://hdl.handle.net/10.1080/1351847X.2011.601659
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal The European Journal of Finance.

Volume (Year): 18 (2012)
Issue (Month): 2 (February)
Pages: 89-107

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Handle: RePEc:taf:eurjfi:v:18:y:2012:i:2:p:89-107

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Cited by:
  1. Xiao, Weilin & Zhang, Weiguo & Zhang, Xili & Chen, Xiaoyan, 2014. "The valuation of equity warrants under the fractional Vasicek process of the short-term interest rate," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 394(C), pages 320-337.
  2. Papadamou, Stephanos, 2013. "Market anticipation of monetary policy actions and interest rate transmission to US Treasury market rates," Economic Modelling, Elsevier, vol. 33(C), pages 545-551.

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