Application of the Generalized Method of Moments for Estimating Continuous-Time Models of U.S. Short-Term Interest Rates
AbstractWe show by Monte Carlo simulations that the jackknife estimation of QUENOUILLE (1956) provides substantial bias reduction for the estimation of short-term interest rate models applied in CHAN ET AL. (1992) - hereafter CKLS (1992). We find that an alternative estimation based on NOWMAN (1997) does not sufficiently solve the problem of time aggregation. We provide empirical distributions for parameter tests depending on the elasticity of conditional variance. Using three-month U.S. Treasury bill yields and the Federal fund rates, we demonstrate that the estimation results can depend on both the sampling frequency and the proxy that is used for interest rates.
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Bibliographic InfoPaper provided by University of Heidelberg, Department of Economics in its series Working Papers with number 0462.
Length: 24 pages
Date of creation: Jan 2008
Date of revision: Jan 2008
Elasticity of conditional variance; generalized method of moments; jackknife estimation; stochastic differential equations; short-term interest rate.;
Find related papers by JEL classification:
- C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-02-09 (All new papers)
- NEP-ECM-2008-02-09 (Econometrics)
- NEP-MON-2008-02-09 (Monetary Economics)
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