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Mean reversion in US and international short rates

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  • Christiansen, Charlotte

Abstract

We extend the CKLS one factor short rate model to include nonlinear mean reversion in a new way. We allow for extreme value mean reversion by including the smallest short rate during the previous year in the mean equation. The US short rate is found to exhibit extreme value mean reversion. The evidence of mean reversion varies across the short rates in the US and five other major markets (Canada, Germany, Japan, Switzerland, and the UK).

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File URL: http://www.sciencedirect.com/science/article/pii/S1062-9408(10)00019-7
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Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

Volume (Year): 21 (2010)
Issue (Month): 3 (December)
Pages: 286-296

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Handle: RePEc:eee:ecofin:v:21:y:2010:i:3:p:286-296
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620163

Keywords: Short term interest rate Mean reversion Extreme value Nonlinearity;

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Find related papers by JEL classification:
  • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
  • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
  • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
  • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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Cited by:

  1. Jha, Veena, 2009. "The effects of fiscal stimulus packages on employment," ILO Working Papers 433897, International Labour Organization.
  2. Gabriel J Power & Charli D Tandja M & Josee Bastien & Philippe Gregoire, 2015. "Measuring infrastructure investment option value," Journal of Risk Finance, Emerald Group Publishing, vol. 16(1), pages 49-72.

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