Alternative Approaches to Modeling Time Variation in the Case of the U.S. Real Interest Rate

Basma Bekdache

Computational Economics, 1998, vol. 11, issue 1-2, 51 pages

Abstract: This paper compares three approaches for modeling time variation in the U.S. real interest rate: a three-state Markov switching model as estimated by Garcia and Perron (1994), a random-walk model with two-state Markov switching variance, and a time-varying parameter model with two-state Markov switching variance. The findings are generally supportive of modeling continual change in the mean of the real rate process rather than employing a model that limits variation in the mean to a specified number of states. Citation Copyright 1998 by Kluwer Academic Publishers.

Date: 1998
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