This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Linear cointegration of nonlinear time series with an application to interest rate dynamics

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Barry E. Jones
Travis D. Nesmith

Additional information is available for the following registered author(s):

Abstract

We derive a definition of linear cointegration for nonlinear stochastic processes using a martingale representation theorem. The result shows that stationary linear cointegrations can exhibit nonlinear dynamics, in contrast with the normal assumption of linearity. We propose a sequential nonparametric method to test first for cointegration and second for nonlinear dynamics in the cointegrated system. We apply this method to weekly US interest rates constructed using a multirate filter rather than averaging. The Treasury Bill, Commercial Paper and Federal Funds rates are cointegrated, with two cointegrating vectors. Both cointegrations behave nonlinearly. Consequently, linear models will not fully replicate the dynamics of monetary policy transmission.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.federalreserve.gov/pubs/feds/2007/200703/200703abs.html
File Format: text/html
File Function:
Download Restriction: no
File URL: http://www.federalreserve.gov/pubs/feds/2007/200703/200703pap.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2007-03.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length:
Date of creation: 2006
Date of revision:
Handle: RePEc:fip:fedgfe:2007-03

Contact details of provider:
Postal: 20th Street and Constitution Avenue, NW, Washington, DC 20551
Web page: http://www.federalreserve.gov/
More information through EDIRC

Order Information:
Web: http://www.federalreserve.gov/pubs/feds/fedsorder.html

For technical questions regarding this item, or to correct its listing, contact: (Diane Rosenberger).

Related research
Keywords: Time-series analysis Cointegration Interest rates

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Lee, Young-Sook & Kim, Tae-Hwan & Newbold, Paul, 2005. "Spurious nonlinear regressions in econometrics," Economics Letters, Elsevier, vol. 87(3), pages 301-306, June. [Downloadable!] (restricted)
    Other versions:
  2. repec:cup:macdyn:v:5:y:2001:i:3:p:380-412 is not listed on IDEAS
  3. Hinich, Melvin J & Patterson, Douglas M, 1985. "Evidence of Nonlinearity in Daily Stock Returns," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(1), pages 69-77, January.
  4. Barnett, William A. & Gallant, A. Ronald & Hinich, Melvin J. & Jungeilges, Jochen A. & Kaplan, Daniel T. & Jensen, Mark J., 1997. "A single-blind controlled competition among tests for nonlinearity and chaos," Journal of Econometrics, Elsevier, vol. 82(1), pages 157-192. [Downloadable!] (restricted)
    Other versions:
  5. David K. Backus & Stanley E. Zin, 1993. "Long-memory inflation uncertainty: evidence from the term structure of interest rates," Proceedings, Federal Reserve Bank of Cleveland, pages 681-708.
    Other versions:
  6. Tsay, Wen-Jen, 2000. "Long memory story of the real interest rate," Economics Letters, Elsevier, vol. 67(3), pages 325-330, June. [Downloadable!] (restricted)
  7. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March. [Downloadable!] (restricted)
  8. Barnett, William A. & Ronald Gallant, A. & Hinich, Melvin J. & Jungeilges, Jochen A. & Kaplan, Daniel T. & Jensen, Mark J., 1995. "Robustness of nonlinearity and chaos tests to measurement error, inference method, and sample size," Journal of Economic Behavior & Organization, Elsevier, vol. 27(2), pages 301-320, July. [Downloadable!] (restricted)
  9. Maki, Daiki, 2003. "Nonparametric cointegration analysis of the nominal interest rate and expected inflation rate," Economics Letters, Elsevier, vol. 81(3), pages 349-354, December. [Downloadable!] (restricted)
  10. Nelson, Charles R. & Plosser, Charles R., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162. [Downloadable!] (restricted)
  11. Coakley, Jerry & Fuertes, Ana-Maria, 2001. "Nonparametric Cointegration Analysis of Real Exchange Rates," Applied Financial Economics, Taylor and Francis Journals, vol. 11(1), pages 1-8, February. [Downloadable!] (restricted)
  12. Melvin Hinich & Eduardo Mendes & Lewi Stone, 2005. "Detecting Nonlinearity in Time Series: Surrogate and Bootstrap Approaches," Studies in Nonlinear Dynamics & Econometrics, Berkeley Electronic Press, vol. 9(4), pages 1268-1268. [Downloadable!] (restricted)
  13. Rapach, David E. & Weber, Christian E., 2004. "Are real interest rates really nonstationary? New evidence from tests with good size and power," Journal of Macroeconomics, Elsevier, vol. 26(3), pages 409-430, September. [Downloadable!] (restricted)
  14. Choi, Woon Gyu, 1999. "Asymmetric Monetary Effects on Interest Rates across Monetary Policy Stances," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 386-416, August.
  15. repec:cup:macdyn:v:2:y:1998:i:1:p:72-88 is not listed on IDEAS
  16. Karanasos, M. & Sekioua, S.H. & Zeng, N., 2006. "On the order of integration of monthly US ex-ante and ex-post real interest rates: New evidence from over a century of data," Economics Letters, Elsevier, vol. 90(2), pages 163-169, February. [Downloadable!] (restricted)
  17. Zacharias Psaradakis & Martin Sola & Fabio Spagnolo, 2006. "Instrumental-Variables Estimation in Markov Switching Models with Endogenous Explanatory Variables: An Application to the Term Structure of Interest Rates," Studies in Nonlinear Dynamics & Econometrics, Berkeley Electronic Press, vol. 10(2), pages 1302-1302. [Downloadable!] (restricted)
  18. Bierens, Herman J., 1997. "Nonparametric cointegration analysis," Journal of Econometrics, Elsevier, vol. 77(2), pages 379-404, April. [Downloadable!] (restricted)
    Other versions:
  19. Alessandro Calza & João Sousa, 2006. "Output and Inflation Responses to Credit Shocks: Are There Threshold Effects in the Euro Area?," Studies in Nonlinear Dynamics & Econometrics, Berkeley Electronic Press, vol. 10(2), pages 1253-1253. [Downloadable!] (restricted)
    Other versions:
  20. Pfann, Gerard A. & Schotman, Peter C. & Tschernig, Rolf, 1996. "Nonlinear interest rate dynamics and implications for the term structure," Journal of Econometrics, Elsevier, vol. 74(1), pages 149-176, September. [Downloadable!] (restricted)
    Other versions:
  21. Johansen, Soren, 1992. "Determination of Cointegration Rank in the Presence of a Linear Trend," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 383-97, August.
    Other versions:
  22. Gil-Alana, Luis A., 2004. "Long memory in the U.S. interest rate," International Review of Financial Analysis, Elsevier, vol. 13(3), pages 265-276. [Downloadable!] (restricted)
Full references

Statistics
Access and download statistics

Did you know? To receive notification of recent additions to the database, subscribe to the free NEP reports.

This page was last updated on 2008-7-23.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.