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The Role of Asymmetries and Regime Shifts in the Term Structure of Interest Rates

  • Richard H. Clarida

    (Columbia University and National Bureau of Economic Research)

  • Lucio Sarno

    (University of Warwick and Centre for Economic Policy Research)

  • Mark P. Taylor

    (University of Warwick and Centre for Economic Policy Research)

  • Giorgio Valente

    (Chinese University of Hong Kong)

We examine the term structure of interest rates for the United States, Germany, and Japan over the period 1982–2000, using a nonlinear multivariate vector equilibrium correction-modeling framework that allows for asymmetric adjustment and regime shifts. The model has a very general underlying theoretical rationale that allows for time-varying term premia and other short-run deviations from the expectations model of the term structure. The empirical models fit well, display regime switches closely correlated with key monetary policy variables, and have good forecasting properties.

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File URL: http://dx.doi.org/10.1086/500674
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Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 79 (2006)
Issue (Month): 3 (May)
Pages: 1193-1224

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Handle: RePEc:ucp:jnlbus:v:79:y:2006:i:3:p:1193-1224
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