Arbeitspapier
Threshold dynmamics of short-term interest rates: empirical evidence and implications for the term structure
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.
- Language
-
Englisch
- Bibliographic citation
-
Series: Discussion Paper Series 1 ; No. 2007,02
- Classification
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Wirtschaft
Interest Rates: Determination, Term Structure, and Effects
Asset Pricing; Trading Volume; Bond Interest Rates
Single Equation Models; Single Variables: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- Subject
-
Non-affine term structure models
SETAR models
Asset pricing
Zinsstruktur
Zins
Dynamisches Modell
Schätzung
Theorie
Deutschland
USA
regime-switching
- Event
-
Geistige Schöpfung
- (who)
-
Archontakis, Theofanis
Lemke, Wolfgang
- Event
-
Veröffentlichung
- (who)
-
Deutsche Bundesbank
- (where)
-
Frankfurt a. M.
- (when)
-
2007
- Handle
- Last update
-
10.03.2025, 11:41 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Archontakis, Theofanis
- Lemke, Wolfgang
- Deutsche Bundesbank
Time of origin
- 2007
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