Please use this identifier to cite or link to this item: http://hdl.handle.net/1893/25015
Appears in Collections:Economics Journal Articles
Peer Review Status: Refereed
Title: Non-linear interest rate dynamics and forecasting: evidence for US and Australian interest rates
Authors: McMillan, David
Contact Email: david.mcmillan@stir.ac.uk
Keywords: Non-linear error correction
threshold models
interest rates
Issue Date: Apr-2009
Citation: McMillan D (2009) Non-linear interest rate dynamics and forecasting: evidence for US and Australian interest rates, International Journal of Finance and Economics, 14 (2), pp. 139-155.
Abstract: Recent empirical finance research has suggested the potential for interest rate series to exhibit non-linear adjustment to equilibrium. This paper examines a variety of models designed to capture these effects and compares both their in-sample and out-of-sample performance with a linear alternative. Using short- and long-term interest rates we report evidence that a logistic smooth-transition error-correction model is able to best characterize the data and provide superior out-of-sample forecasts, especially for the short rate, over both linear and non-linear alternatives. This model suggests that market dynamics differ depending on whether the deviations from long-run equilibrium are above or below the threshold value.
DOI Link: http://dx.doi.org/10.1002/ijfe.358
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