|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|
|Keywords:||Non-linear error correction|
|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.|
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