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Is There a Unit Root in East-Asian Short-Term Interest Rates?

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Author Info
Chew Lian Chua () (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)
Sandy Suardi () (School of Economics, The University of Queensland)
Abstract

This paper tests for the presence of nonlinear dynamics in selected Asian short rates and employs a regime varying unit root test to detect non-stationarity for distinct regimes. Nonlinearities in the form of Markov-switching dynamics are found in all short rates sample. The mean-reverting behaviour of interest rates is dependent on both the level and volatility of interest rates. The occasional random walk and mean-reverting dynamics of short rates are attributed to the macroeconomic fundamentals, exchange rate regimes and monetary policy objectives in these economies.

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Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2005n14.

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Length: 36 pages
Date of creation: Sep 2005
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Handle: RePEc:iae:iaewps:wp2005n14

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