Testing linearity in term structures
This article uses robust nonparametric techniques to investigate both crosssectional and dynamic properties of affine models, a popular framework to analyse Term Structures (TSs) of interest rates. The analysis shows the strong nonlinearity in the relationship of yields to the US and UK short rate. The nonlinear pattern is concave in the state variable, and increasing with respect to the maturity, for both countries. Linear and nonlinear specifications are then compared by means of a formal statistical criterion, the Generalized Likelihood-Ratio (GLR) test statistics, which confirms evidence against the linear specification.
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Volume (Year): 22 (2012)
Issue (Month): 8 (April)
Pages: 651-666
| Handle: | RePEc:taf:apfiec:v:22:y:2012:i:8:p:651-666 |
| Contact details of provider: | Web page: http://www.tandfonline.com/RAFE20
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References listed on IDEAS
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- Gil-Alana, L. A. & Robinson, P. M., 1997. "Testing of unit root and other nonstationary hypotheses in macroeconomic time series," Journal of Econometrics, Elsevier, vol. 80(2), pages 241-268, October.
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- Diebold, Francis X. & Rudebusch, Glenn D., 1991.
"On the power of Dickey-Fuller tests against fractional alternatives,"
Economics Letters,
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- Bandi, Federico M., 2002. "Short-term interest rate dynamics: a spatial approach," Journal of Financial Economics, Elsevier, vol. 65(1), pages 73-110, July.
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