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

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  • 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)

Abstract

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.

Suggested Citation

  • Richard H. Clarida & Lucio Sarno & Mark P. Taylor & Giorgio Valente, 2006. "The Role of Asymmetries and Regime Shifts in the Term Structure of Interest Rates," The Journal of Business, University of Chicago Press, vol. 79(3), pages 1193-1224, May.
  • Handle: RePEc:ucp:jnlbus:v:79:y:2006:i:3:p:1193-1224
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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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