The Role of Asymmetries and Regime Shifts in the Term Structure of Interest Rates

Richard Clarida, Lucio Sarno (), Mark P. Taylor () and Giorgio Valente ()

No 4835, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We examine the relationship between interest rates of different maturities for the US, Germany and Japan over the period 1982-2000, using a general, multivariate vector equilibrium correction modelling framework capable of simultaneously allowing for asymmetric adjustment and regime shifts. This approach has a very general underlying theoretical rationale that allows for time-varying term premia and other short-run deviations from the expectations model of the term structure. The resulting non-linear models provide good in-sample fits, display regime switches closely related to key state variables driving monetary policy decisions and have satisfactory out-of-sample forecasting properties.

Keywords: forecasting; markov switching; term structure of interest rates (search for similar items in EconPapers)
JEL-codes: E43 E47 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-fmk, nep-mac and nep-mon
Date: 2005-01
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Related works:
Working Paper: The Role of Asymmetries and Regime Shifts in the Term Structure of Interest Rates (2004)
Journal Article: The Role of Asymmetries and Regime Shifts in the Term Structure of Interest Rates (2006)
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