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Regime Switches in Interest Rates

Listed author(s):
  • Ang, Andrew
  • Bekaert, Geert

We examine the econometric performance of regime-switching models for interest rate data from the United States, Germany, and the United Kingdom. Regime-switching models forecast better out-of-sample than single-regime models, including an affine multifactor model, but do not always match moments very well. Regime-switching models incorporating international short-rate and term spread information forecast better, match sample moments better, and classify regimes better than univariate regime-switching models. Finally, the regimes in interest rates correspond reasonably well with business cycles, at least in the United States.

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Article provided by American Statistical Association in its journal Journal of Business and Economic Statistics.

Volume (Year): 20 (2002)
Issue (Month): 2 (April)
Pages: 163-182

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Handle: RePEc:bes:jnlbes:v:20:y:2002:i:2:p:163-82
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