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Modeling the dynamics of Chinese spot interest rates

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  • Hong, Yongmiao
  • Lin, Hai
  • Wang, Shouyang

Abstract

Using the daily data of Chinese 7-day repo rates from January 1, 1997 to December 31, 2008, this paper tests a variety of popular spot rate models, including single-factor diffusion, GARCH, Markov regime-switching and jump-diffusion models. We document that Chinese spot rates are subject to both market forces and administrative forces. GARCH, regime-switching and jump-diffusion models capture some important features of the dynamics of Chinese spot rates, but all models under study are overwhelmingly rejected. We further explore possible sources of model misspecification using diagnostic tests.

Suggested Citation

  • Hong, Yongmiao & Lin, Hai & Wang, Shouyang, 2010. "Modeling the dynamics of Chinese spot interest rates," Journal of Banking & Finance, Elsevier, vol. 34(5), pages 1047-1061, May.
  • Handle: RePEc:eee:jbfina:v:34:y:2010:i:5:p:1047-1061
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    1. Golmohammadi, Davood & Radnia, Naeimeh, 2016. "Prediction modeling and pattern recognition for patient readmission," International Journal of Production Economics, Elsevier, vol. 171(P1), pages 151-161.
    2. Nowman, Khalid Ben, 2010. "Modelling the UK and Euro yield curves using the Generalized Vasicek model: Empirical results from panel data for one and two factor models," International Review of Financial Analysis, Elsevier, vol. 19(5), pages 334-341, December.
    3. Löchel, H. & Packham, N. & Walisch, F., 2016. "Determinants of the onshore and offshore Chinese government yield curves," Pacific-Basin Finance Journal, Elsevier, vol. 36(C), pages 77-93.
    4. Li, Shaoyu & Zheng, Tingguo, 2017. "Modeling spot rate using a realized stochastic volatility model with level effect and dynamic drift☆," The North American Journal of Economics and Finance, Elsevier, vol. 40(C), pages 200-221.
    5. Ka-Fai Li & Cho-Hoi Hui & Tsz-Kin Chung, 2012. "Determinants and Dynamics of Price Disparity in Onshore and Offshore Renminbi Forward Exchange Rate Markets," Working Papers 242012, Hong Kong Institute for Monetary Research.
    6. Sun, Rongrong, 2018. "Monetary Policy Announcements and Market Interest Rates’ Response: Evidence from China," MPRA Paper 87703, University Library of Munich, Germany.
    7. Loechel, Horst & Packham, Natalie & Walisch, Fabian, 2013. "Determinants of the onshore and offshore Chinese Government yield curves," Frankfurt School - Working Paper Series 202, Frankfurt School of Finance and Management.

    More about this item

    Keywords

    Spot rate models Term structure of interest rates Market segmentation Nonparametric specification tests;

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • G1 - Financial Economics - - General Financial Markets

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