Nonlinear Error Correction Modeling in German Interest Rates
Nonlinear dynamics in the term structure of German interest rates resulting from heterogenous transaction costs in the money market are analyzed by means of the smooth transition technique introduced by Granger and Terasvirta (1993). Tests for linearity, specific functional forms and outliers are performed. Evidence is found indicating that the term structure is somewhat better described as a nonlinear cointegrated model instead of a linear one.
Volume (Year): 219 (1999)
Issue (Month): 3+4 (September)
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