 Estimating the Fractional Order of Integration of Interest Rates Using a Wavelet OLS EstimatorGreg Tkacz () Staff Working Papers from Bank of Canada Abstract: The debate on the order of integration of interest rates has long focused on the I(1) versus I(0) distinction. In this paper, we use instead the wavelet OLS estimator of Jensen (1999) to estimate the fractional integration parameters of several interest rates for the United States and Canada from 1948 to 1999. We find that most rates are mean-reverting in the very long run, with the fractional order of integration increasing with the term to maturity. The speeds of mean-reversion are lower in Canada, due likely to a positive country-specific risk premium. We also demonstrate that yield spreads contain noticeable persistence, indicating that these are also not strict I(0) processes. The consequences of these findings are that shocks to most interest rates and their spreads are very long-lasting, yet not necessarily infinite. Keywords: Econometric and statistical methods; Interest rates (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:00-5 Access Statistics for this paper More papers in Staff Working Papers from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.