Download or read book Threshold dynamics of short term interest rates empirical evidence and implications for the term structure written by Theofanis Archontakis and published by . This book was released on 2007 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Threshold Dynmamics of Short Term Interest Rates written by Theofanis Archontakis and published by . This book was released on 2016 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies a nonlinear one-factor term structure model in discrete time. The single factor is the short-term interest rate, which is modeled as a self-exciting threshold autoregressive (SETAR) process. Our specification allows for shifts in the intercept and the variance. The process is stationary but mimics the nearly I(1) dynamics typically encountered with interest rates. In comparison with a linear model, we find empirical evidence in favor of the threshold model for Germany and the US. Based on the estimated short-rate dynamics we derive the implied arbitrage-free term structure of interest rates. Since analytical solutions are not feasible, bond prices are computed by means of Monte Carlo integration. The resulting term structure exhibits properties that are qualitatively similar to those observed in the data and which cannot be captured by the linear Gaussian one-factor model. In particular, our model captures the nonlinear relation between long rates and the short rate found in the data.

Download or read book Nonlinear Interest Rate Dynamics and Implications for the Term Structure written by Gerard A. Pfann and published by . This book was released on 1999 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper explores nonlinear dynamics for the time series of the short term interest rate in the United States. The proposed model is an autoregressive threshold model augmented by conditional heteroskedasticity. The performance of the model is evaluated by considering its implications for the term structure of interest rates. The nonlinear dynamics imply a form of nonlinearity in the levels relation between the long and the short rate. Empirical results indicate that the implied nonlinearity is present in the data.

Download or read book Threshold Cointegration and Threshold Dynamics written by Pin Johnny Chung and published by . This book was released on 2003 with total page 183 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study utilized monthly averages of daily rates for the 10-year constant maturity Treasury note, the Ibbotson Bond Index with maturity of 20-year Treasury Index, and Moody's Aaa and Baa seasoned bond indices to investigate the threshold behavior of interest rates pairs. The data covered the period from January 1960 to December 1997, with a total of 456 observations for each variable. Three (Lo-Zivot 2001, Hansen-Seo 2002, and Enders-Siklos 2001) different non-linear, discontinuous, asymmetric time-series econometric alternatives were applied to investigate the dynamics of the four interest rates pairs. Forecasting accuracy evaluation was utilized for model evaluation by applying one-step-ahead up to six-step-ahead forecasts. Among the findings, it was ascertained that interest spreads are stationary, yet the speeds of adjustment are asymmetric. In a bivariate setting, all of the interest rates pairs followed the threshold cointegration behavior. All the interest rates pairs were shown to be threshold cointegrated. In general, the adjustment speeds were asymmetric and, especially, the threshold estimates were asymmetric in a three-regime environment. Long run equilibrium relationships existed between Moody's corporate bond indices and Treasury note and Ibbotson bond index. In general, for a one percent increase in Treasury rates (either Treasury note or Ibbotson index), in the long run, it will generate a more than one percent increase in corporate bond indices (Aaa or Baa). Furthermore, the Baa bond index was shown to have a greater sensitivity to interest rate changes than the Aaa bond index. For the model evaluation side, one-step-ahead forecast to six-step-ahead forecast performance evaluations were conducted for the threshold cointegration models and the counterpart of the linear cointegration models. The results showed that no one particular threshold cointegration model dictated the overall forecasting accuracy. For different interest rates pairs under consideration, different threshold cointegration models offered a better fit. Moreover, all of the linear cointegration models performed relatively less accurate than the threshold cointegration models, which reinforce the empirical applications of the threshold cointegration models.

Download or read book The Dynamics of the Australian Short Term Interest Rate written by Tim Brailsford and published by . This book was released on 1998 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines various models of the short-term interest rate in Australia. The analysis centres on three classes of models employing a comprehensive data set. First, the generalised diffusion model of Chan et al (1992) is examined which allows the variance to be a function of interest rate levels. This model nests a number of the early term structure models. We find initial support for the generalised model. Second, we examine models which incorporate time-varying volatility dynamics. Third, a class of models which incorporate both time-varying volatility and the levels model is analysed. We extend this model by allowing for an additional asymmetric reaction to news resulting in a threshold-type model. The paper examines each of the models and then proposes and performs prediction tests which allow different classes of model to be benchmarked. The second and third class of models appear to produce the most accurate estimates. The results indicate a number of important differences between the Australian market and overseas markets. We also find the results to be generally robust to various refinements in method.

Download or read book Interest Rate Targeting and the Dynamics of Short Term Rates written by Pierluigi Balduzzi and published by . This book was released on 2008 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: We explore the link between the overnight fed funds rate, which is actively targeted by the Federal Reserve, and longer-maturity term fed funds rates. We develop a term-structure model which explicitly accounts for interest rate targeting and for the predictability of future target changes. The model is able to replicate some qualitative features of the dynamic behavior of deviations of short-term rates from the target.

Download or read book Short term Interest Rates Inflation Dynamics and Price cost Margins written by Mahsa Agha Gholizadeh and published by . This book was released on 2015 with total page 201 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation investigates the possibility that monetary policy shocks have supply-side or "cost-channel" effects as well as demand-side effects. This dissertation specifically attempts to shed more light on the transmission mechanism of monetary policy to inflation dynamics and price-cost margins (PCMs). During a time of rising short-term interest rates, there is often discussion of rising inventory costs and deterioration of firms' balance sheets, along with the possibility of firms passing these higher costs along to consumers in the form of higher markups.

Download or read book Asymmetric Dynamics in UK Real Interest Rates written by Ana-Maria Fuertes and published by . This book was released on 2003 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper explores the long run behaviour and short run dynamics of quarterly UK real interest rates, 1950-1999, in a threshold autoregressive framework. Using bootstrap LR extensions of the Enders and Granger (1998) threshold unit root and asymmetry tests, it finds support for sign and amplitude asymmetric mean reversion. These findings provide one explanation for the apparent persistence in real interest rates and are consistent with asymmetric feedback rules for inflation targeting.

Download or read book A Comprehensive Analysis of the Short Term Interest Rate Dynamics written by Turan G. Bali and published by . This book was released on 2012 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides a comprehensive analysis of the short-term interest-rate dynamics based on three different data sets and two flexible parametric specifications. The significance of nonlinearity in the short-rate drift declines with increasing maturity for the interest-rate series used in the study. Using a flexible diffusion specification and incorporating GARCH volatility and non-normal innovation reduce the need for a nonlinear drift specification. Finally, the nonlinear drift specification performs better than the linear drift specification only when the short-term interest-rate levels reach historical highs.

Download or read book Interest Rate Targetting and the Dynamics of Short term Rates written by Pierluigi Balduzzi and published by . This book was released on 1997 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book State Dependent Threshold Smooth Transition Autoregressive Models written by Michael Dueker and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this article, we consider extensions of smooth transition autoregressive (STAR) models to situations where the threshold is a function of variables that affect the separation of regimes of the time series under consideration. Our specification is motivated by the observation that unusually high/low values for an economic variable may sometimes be best thought of in relative terms. State-dependent contemporaneous-threshold STAR and logistic STAR models are introduced and discussed. These models are also used to investigate the dynamics of US short-term interest rates, where the threshold is allowed to be a function of past output growth and inflation.

Download or read book Nonlinear Short Term Interest Rate Dynamics written by Catherine Kyrtsou and published by . This book was released on 2007 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent empirical researches have examined the relationship between US short-term interest rates using linear as well nonlinear econometric tools. The main objective of this paper is to employ a new dynamic model that combines the bivariate noisy Mackey-Glass and the BEKK GARCH processes (recently proposed by Kyrtsou and Labys, 2006, 2007), in the aim to determine the importance of observed non-linear dependences in the evolution of dynamic correlations between historical data for US effective Federal fund rates and 3-month T-Bill rates.

Download or read book The Dynamics of Short Term Interest Rate Volatility Reconsidered written by Kees C. G. Koedijk and published by . This book was released on 1999 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we present and estimate a model of short-term interest rate volatility, that encompasses both the level effect of Chan, Karolyi, Longstaff and Sanders (1992) and the conditional heteroskedasticity effect of the GARCH class of models. This flexible specification allows different effects to dominate as the level of the interest rate varies. We also investigate implications for the pricing of discount bond options. Our findings indicate that the inclusion of a volatility effect in addition to a level effect in the model specification is particularly relevant for the pricing of shorter-term discount bond options.

Download or read book Testing for Threshold Nonlinearity in Short Term Interest Rates written by Nikolay Gospodinov and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This article addresses some empirical problems in the term structure of interest rates using a threshold autoregressive framework with GARCH errors. This framework provides a parsimonious representation of some stylized features of interest rate data and facilitates statistical inference in the presence of high persistence and conditional heteroskedasticity. We propose a bootstrap-based LM test for linearity in the conditional mean and variance functions. The empirical results indicate a presence of threshold nonlinearities in the AR and GARCH representations of the conditional moments of short-term rate. The explicit modeling of these nonlinearities appears to improve the stability properties of the process for spot rate. The article also reports that allowing for threshold nonlinearities in conditional mean and variance leads to significant forecast improvements. The economic significance of these findings is evaluated by the term structure implications of the estimated TAR-GARCH model.

Download or read book Another Look at Models of the Short Term Interest Rate written by Robin J. Brenner and published by . This book was released on 2000 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The short-term rate of interest is fundamental to much of theoretical and empirical finance. Yet no consensus has emerged on the dynamics of its volatility. We show that models which parameterize volatility only as a function of interest rate levels tend to over-emphasize the sensitivity of volatility to levels and fail to model adequately the serial correlation in conditional variances. On the other hand, serial correlation-based models like GARCH models fail to capture adequately the relationship between interest rate levels and volatility. We introduce and test a new class of models for the dynamics of short- term interest rate volatility which allows volatility to depend on both interest rate levels and information shocks. Two important conclusions emerge. First, the sensitivity of interest rate volatility to interest rate levels has been overstated in the literature. While this relationship is important, adequately modeling volatility as a function of unexpected information shocks is also important. Second, we conclude that the volatility processes in many existing theoretical models of interest rates are misspecified, and suggest new paths toward improving the theory.

Download or read book Negative Interest Rate Policy NIRP written by Andreas Jobst and published by International Monetary Fund. This book was released on 2016-08-10 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: More than two years ago the European Central Bank (ECB) adopted a negative interest rate policy (NIRP) to achieve its price stability objective. Negative interest rates have so far supported easier financial conditions and contributed to a modest expansion in credit, demonstrating that the zero lower bound is less binding than previously thought. However, interest rate cuts also weigh on bank profitability. Substantial rate cuts may at some point outweigh the benefits from higher asset values and stronger aggregate demand. Further monetary accommodation may need to rely more on credit easing and an expansion of the ECB’s balance sheet rather than substantial additional reductions in the policy rate.

Download or read book Journal of Economic Dynamics Control written by and published by . This book was released on 2003 with total page 1158 pages. Available in PDF, EPUB and Kindle. Book excerpt: