Long memory models of interest rates, the term structure, and variance bounds tests
Variance bounds tests of the rational expectations hypothesis of the interest rate term structure are sensitive to the stochastic characterization of short-term interest rates used. When a long memory or fractional difference nonstationary time series model is used in preference to a mean stationary model, the rational expectations hypothesis is not rejected. Long memory models of interest rates are estimated and tested against alternatives. Their forecasting properties are also examined. Hypothesis tests are based upon bootstrapping (Monte Carlo) methodologies.
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- Brick, John R & Thompson, Howard E, 1978. "Time Series Analysis of Interest Rates: Some Additional Evidence," Journal of Finance, American Finance Association, vol. 33(1), pages 93-103, March.
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- Singleton, Kenneth J, 1980. "Expectations Models of the Term Structure and Implied Variance Bounds," Journal of Political Economy, University of Chicago Press, vol. 88(6), pages 1159-76, December.
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