An analysis of the time series properties of the UK ex-post real interest rate: fractional integration, breaks or nonlinear

David McMillan and Mark Wohar

Applied Financial Economics, 2010, vol. 20, issue 22, 1697-1707

Abstract: In this article we examine the persistent nature of the 3-month UK real interest rate for the period 1957:Q2 to 2008:Q2. We employ unit root and cointegration tests, confidence intervals for the sum of the Autoregressive (AR) coefficient, fractional integration tests, structural break tests and threshold modelling. Evidence from both unit root tests and AR modelling support the view that the real rate is nonstationary. Similarly, and in contrast to previous literature, the fractional integration test supports covariance nonstationarity, although there is evidence of mean reversion. Evidence from structural break tests support stationary behaviour, but only if we allow for three or more breaks, which may not be defendable on economic grounds. Finally, stationary behaviour is supported by a nonlinear exponential smooth transition model, which suggests that the real rate behaves in a random walk fashion when the rate is close to equilibrium but exhibits strong mean reversion when the disequilibrium becomes large.

Date: 2010
References: View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/09603107.2010.522520 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:apfiec:v:20:y:2010:i:22:p:1697-1707

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAFE20

DOI: 10.1080/09603107.2010.522520

Access Statistics for this article

Applied Financial Economics is currently edited by Anita Phillips

More articles in Applied Financial Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().