The Role of Regime Shifts in the Term Structure of Interest Rates: Further Evidence from an Emerging Market

Burak Saltoğlu and Ege Yazgan ()

Emerging Markets Finance and Trade, 2012, vol. 48, issue S5, 48-63

Abstract: In this paper, we investigate the interrelationships among Turkish interest rates having different maturities by using a regime-switching vector error correction model. We find a relationship of long-run equilibrium among interest rates having various maturities. Furthermore, we conclude that term structure dynamics exhibit significant nonlinearity. A forecasting experiment also reveals that the nonlinear term structure models fare better in forecasting than other linear specifications. However, we cannot conclude that interest rate adjustments are made in an asymmetric way in the long run.

Keywords: cointegration; forecast evaluation; forecasting; regime switching; term structure of interest rates (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (2)

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Working Paper: The role of Regime Shifts in the Term Structure of Interest Rates: Further evidence from an Emerging Market (2009)
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