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Is There a Unit Root in East-Asian Short-Term Interest Rates?

  • Chew Lian Chua

    ()

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

  • Sandy Suardi

    ()

    (School of Economics, The University of Queensland)

This paper tests for the presence of nonlinear dynamics in selected Asian short rates and employs a regime varying unit root test to detect non-stationarity for distinct regimes. Nonlinearities in the form of Markov-switching dynamics are found in all short rates sample. The mean-reverting behaviour of interest rates is dependent on both the level and volatility of interest rates. The occasional random walk and mean-reverting dynamics of short rates are attributed to the macroeconomic fundamentals, exchange rate regimes and monetary policy objectives in these economies.

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Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2005n14.

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Length: 36 pages
Date of creation: Sep 2005
Date of revision:
Handle: RePEc:iae:iaewps:wp2005n14
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Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Victoria 3010 Australia

Phone: +61 3 8344 2100
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  1. Ang, Andrew & Bekaert, Geert, 2002. "Regime Switches in Interest Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 163-82, April.
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