Tree-structured multiple regimes in interest rates
Journal
Journal of Business & Economic Statistics
ISSN
0735-0015
Type
journal article
Date Issued
2006-07
Author(s)
Abstract
This article develops a generalized tree-structured (GTS) model of the short-term interest rate that accommodates regime-dependent mean reversion and regime-dependent volatility clustering and level effects in the conditional variance. The model is constructed using the idea of multivariate tree-structured thresholds and nests the popular generalized autoregressive conditional heteroscedasticity and square root processes as simple special cases. It allows us to estimate the optimal number of regimes endogenously from the data and to exploit possible additional information in the term structure and in other macroeconomic variables. We provide empirical evidence of the strong potential of the GTS model in forecasting conditional first and second moments, also in comparison with alternative models of the short rate.
Language
English
Keywords
Studies
Economic models
Interest rates
Forecasting
Variance analysis
HSG Classification
not classified
Refereed
Yes
Publisher
Taylor & Francis
Publisher place
Alexandria
Volume
24
Number
3
Start page
338
End page
353
Pages
16
Subject(s)
Eprints ID
32657