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Statistical evidence on the mean reversion of interest rates

Jan Willem End ()

DNB Working Papers from Netherlands Central Bank, Research Department

Abstract: Based on two hundred years of annual data of the Netherlands , Germany , US and Japan we analyse the mean reversion of long-term interest rates, by unit root tests over rolling windows and taking into account structural breaks and regime changes. While short-term rates and the yield curve tend to revert to their long-term average value, long-term rates can persistently deviate from it. At the outside, we only find weak statistical evidence for mean reversion of long-term rates. Outcomes of smooth transition autoregressive ( STAR ) models for long-term interest rates, indicate that the speed of mean reversion is regime dependent, being stronger when rates are far from their equilibrium value.

Keywords: interest rates; statistical methods; time-series models (search for similar items in EconPapers)
JEL-codes: C22 C49 G12 (search for similar items in EconPapers)
Date: 2011-03
New Economics Papers: this item is included in nep-cba and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:dnb:dnbwpp:284

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