Statistical evidence on the mean reversion of interest rates
AbstractBased on two hundred years of annual data of the Netherlands , Germany , US and Japan we analyse the mean reversion of long-term interest rates, by unit root tests over rolling windows and taking into account structural breaks and regime changes. While short-term rates and the yield curve tend to revert to their long-term average value, long-term rates can persistently deviate from it. At the outside, we only find weak statistical evidence for mean reversion of long-term rates. Outcomes of smooth transition autoregressive ( STAR ) models for long-term interest rates, indicate that the speed of mean reversion is regime dependent, being stronger when rates are far from their equilibrium value.
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Bibliographic InfoPaper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 284.
Date of creation: Mar 2011
Date of revision:
interest rates; statistical methods; time-series models;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-19 (All new papers)
- NEP-CBA-2011-03-19 (Central Banking)
- NEP-MON-2011-03-19 (Monetary Economics)
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