Journal of Banking & Finance Vol. 30 No. 4 2006
A comprehensive analysis of the short-term interest-rate dynamics
Abstract
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.
- DOI
- 10.1016/j.jbankfin.2005.05.003
- Volume
- 30
- Issue
- 4
- Pages
- 1269-1290
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib