The nonlinear dynamics of interest rates
This note evaluates the nonlinear dynamics of interest rates using a three-regime threshold random-walk model and daily, annualized 3-month, 6-month, 1-year, 5-year, 10-year and 30-year US Treasury rates from 4 January 1971 to 31 December 2002. The idea behind this model is that loans occur in all three regimes, but there is an added incentive to lend (borrow) money after interest rates rise (fall) by a large amount. This model finds statistically-significant evidence that interest rates are consistent with a regime-reverting process where on average, interest rates in the two outer regimes revert to the middle regime. This regime-reverting process implies that interest rates have a stabilizing force consistent with a reversal effect.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 1 (2005)
Issue (Month): 2 (March)
|Contact details of provider:|| Web page: http://www.tandfonline.com/RAFL20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RAFL20|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hamilton, James D., 1988. "Rational-expectations econometric analysis of changes in regime : An investigation of the term structure of interest rates," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 385-423.
- David A. Chapman & Neil D. Pearson, 2000.
"Is the Short Rate Drift Actually Nonlinear?,"
Journal of Finance,
American Finance Association, vol. 55(1), pages 355-388, 02.
- Bierens, Herman J., 1997. "Testing the unit root with drift hypothesis against nonlinear trend stationarity, with an application to the US price level and interest rate," Journal of Econometrics, Elsevier, vol. 81(1), pages 29-64, November.
- Yacine Ait-Sahalia, 1995.
"Testing Continuous-Time Models of the Spot Interest Rate,"
NBER Working Papers
5346, National Bureau of Economic Research, Inc.
- Ait-Sahalia, Yacine, 1996. "Testing Continuous-Time Models of the Spot Interest Rate," Review of Financial Studies, Society for Financial Studies, vol. 9(2), pages 385-426.
- Chiang, Thomas C & Chiang, Jeanette Jin, 1999. "On the Nonlinear Specifications of Short-Term Interest Rate Behavior: Evidence from Euro-Currency Markets," Review of Quantitative Finance and Accounting, Springer, vol. 12(4), pages 351-70, June.
- Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
When requesting a correction, please mention this item's handle: RePEc:taf:apfelt:v:1:y:2005:i:2:p:71-74. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If references are entirely missing, you can add them using this form.