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Switching regime models in the Spanish inter-bank market

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Author Info
Arielle Beyaert, Juan J. P rez-Castej

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Abstract

Nonlinear present value models are adjusted to data from the Spanish inter-bank market between 1986 and 1992, with the ultimate objective of testing the rational expectations hypothesis of the term structure of the interest rates. The nonlinearity stems from using models with two stochastically switching regimes. The models are submitted to various specification tests and are compared with linear present value models. Very clearly differentiated regimes are identified, the analysis of the results in the light of the institutional, political and economic events that affected the Spanish economy during the period of study demonstrates the usefulness of this type of models. The expectation hypothesis is, however, rejected.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal The European Journal of Finance.

Volume (Year): 6 (2000)
Issue (Month): 2 (June)
Pages: 93-112
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Handle: RePEc:taf:eurjfi:v:6:y:2000:i:2:p:93-112

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Related research
Keywords: Interest Rates Term Structure Markov Process Switching Regimes Rational Expectations Nonlinearity;

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References listed on IDEAS
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  2. repec:att:wimass:199520 is not listed on IDEAS
  3. Campbell, John Y & Shiller, Robert J, 1987. "Cointegration and Tests of Present Value Models," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1062-88, October. [Downloadable!] (restricted)
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  4. Robert J. Shiller & John Y. Campbell & Kermit L. Schoenholtz, 1983. "Forward Rates and Future Policy: Interpreting the Term Structure of Interest Rates," Cowles Foundation Discussion Papers 667, Cowles Foundation, Yale University. [Downloadable!]
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  5. Banerjee, Anindya & Lumsdaine, Robin L & Stock, James H, 1992. "Recursive and Sequential Tests of the Unit-Root and Trend-Break Hypotheses: Theory and International Evidence," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 271-87, July.
  6. Albentosa, Maria Asuncion Prats & Beyaert, Arielle, 1998. "Testing the Expectations Theory in a Market of Short-Term Financial Assets," Applied Financial Economics, Taylor and Francis Journals, vol. 8(2), pages 101-09, April. [Downloadable!] (restricted)
  7. Modigliani, Franco & Shiller, Robert J, 1973. "Inflation, Rational Expectations and the Term Structure of Interest Rates," Economica, London School of Economics and Political Science, vol. 40(157), pages 12-43, February. [Downloadable!] (restricted)
  8. Dolado, Juan J & Jenkinson, Tim & Sosvilla-Rivero, Simon, 1990. " Cointegration and Unit Roots," Journal of Economic Surveys, Blackwell Publishing, vol. 4(3), pages 249-73.
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  10. Sola, Martin & Driffill, John, 1994. "Testing the term structure of interest rates using a stationary vector autoregression with regime switching," Journal of Economic Dynamics and Control, Elsevier, vol. 18(3-4), pages 601-628. [Downloadable!] (restricted)
  11. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March. [Downloadable!] (restricted)
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  13. Campbell, John Y, 1987. "Does Saving Anticipate Declining Labor Income? An Alternative Test of the Permanent Income Hypothesis," Econometrica, Econometric Society, vol. 55(6), pages 1249-73, November. [Downloadable!] (restricted)
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  14. Robert J. Shiller & J. Huston McCulloch, 1987. "The Term Structure of Interest Rates," NBER Working Papers 2341, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Hamilton, James D., 1996. "Specification testing in Markov-switching time-series models," Journal of Econometrics, Elsevier, vol. 70(1), pages 127-157, January. [Downloadable!] (restricted)
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  16. Perron, Pierre, 1988. "Trends and random walks in macroeconomic time series : Further evidence from a new approach," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 297-332. [Downloadable!] (restricted)
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  17. W. A. Broock & J. A. Scheinkman & W. D. Dechert & B. LeBaron, 1996. "A test for independence based on the correlation dimension," Econometric Reviews, Taylor and Francis Journals, vol. 15(3), pages 197-235. [Downloadable!] (restricted)
  18. Hamilton, James D., 1990. "Analysis of time series subject to changes in regime," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 39-70. [Downloadable!] (restricted)
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Cited by:
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  1. Osmani Teixeira de Carvalho Guillén & Benjamin M. Tabak?, 2007. "Characterizing The Brazilian Term Structure Of Interest Rates," Anais do XXXV Encontro Nacional de Economia [Proceedings of the 35th Brazilian Economics Meeting] 108, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
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