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Title:Volatility estimates of the short term interest rate with an application to German data PDF Logo
Authors:Dankenbring, Henning
Issue Date:1998
Series/Report no.:Discussion Papers, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes 1998,96
Abstract:This paper proposes a procedure for testing alternative specifications of the short term interest rate's dynamics which takes into account that according to some restrictions the interest rate is nonstationary, i.e. the traditional test statistic has a non-standard distribution. Moreover, we do not take the specification of the mean equation as given by the theory but rather base the decision of the lag structure on a robust Lagrange Multiplier test. In contrast to U.S. data we find that the volatility depends on either the interest rate level or information shocks but not on both. Finally, we propose to describe the short term interest rate's dynamics by means of an AR(1) model with stochastic volatility.
Subjects:Term Structure Models
Stochastic Volatility
ARCH
JEL:C2
E4
G1
Persistent Identifier of the first edition:urn:nbn:de:kobv:11-10060674
Document Type:Working Paper
Appears in Collections:Discussion Papers, SFB 373, HU Berlin

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