Regime Switches in Swedish Interest Rates

Ulf G. Erlandsson ()

No 2002:5, Working Papers from Lund University, Department of Economics

Abstract: This paper examines the forecasting properties of a Markov regime-switching model applied to Swedish interest rate volatility. A Monte Carlo testing procedure is used to arrive at a three state specification that is able to capture the high degree of leptokurtosis in the data without additional modelling of conditional heteroskedasticity. The final specification is shown to possess good forecasting properties both in general and for specific samples and horizons, something that the benchmark processes are unable to achieve.

Keywords: Regime switching; forecasting; volatility (search for similar items in EconPapers)
JEL-codes: C22 C52 E43 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-ets
Date: 2002-02-26, Revised 2005-03-04
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