Regime-switching models are well suited to capture the non-linearities in interest rates. This paper examines the econometric performance of regime-switching models for interest rate data from the US, Germany and the UK. There is strong evidence supporting the presence of regime switches but univari...

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Bibliographic Details

Main Authors:	Ang, Andrew (Author), Bekaert, Geert 1964- (Author)
Format:	Book
Language:	English
Published:	Cambridge, Mass. 1998
Series:	National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series 6508
Subjects:	Taux d'intérêt - Allemagne - Modèles économétriques Taux d'intérêt - Grande-Bretagne - Modèles économétriques Taux d'intérêt - Prévision, Théorie de la Taux d'intérêt - États-Unis - Modèles économétriques Ökonometrisches Modell Interest rates > Forecasting > Statistical methods Interest rates > Germany > Econometric models Interest rates > Great Britain > Econometric models Interest rates > United States > Econometric models Stochastic analysis Deutschland Großbritannien USA
Online Access:	Volltext
Summary:	Regime-switching models are well suited to capture the non-linearities in interest rates. This paper examines the econometric performance of regime-switching models for interest rate data from the US, Germany and the UK. There is strong evidence supporting the presence of regime switches but univariate models are unlikely to yield consistent estimates of the model parameters. Regime-switching models incorporating international short rate and term spread information forecast better, match sample moments better, and classify regimes better than univariate models. We show that the regimes in interest rates correspond reasonably well with business cycles, at least in the US. This may explain why regime-switching models forecast interest rates better than single regime models. Finally, the non-linear interest rate dynamics implied by regime-switching models have potentially important implications for the macroeconomic literature documenting the effects of monetary policy shocks on economic aggregates. Moreover, the implied volatility and drift functions are rich enough to resemble those recently estimated using non-parametric techniques.
Physical Description:	41 S. graph. Darst.