A Convergence Model of the Term Structure of Interest Rates
Viktors Ajevskis () and
No 2009/01, Working Papers from Latvijas Banka
This paper develops a convergence model of the term structure of interest rates in the context of entering the EMU. Compared with the other models developed so far in this field, our model specification ensures convergence of the domestic short-term interest rates to the euro area ones. We achieve this convergence by stating that the spread between the domestic and euro short-term interest rates follows the Brownian bridge process. We also develop an econometric counterpart of the theoretical model. To address the problem of nonstationarity and nonlinearity of the model, the extended Kalman filter for coefficient estimation is applied.
Keywords: term structure of interest rates; the Brownian bridge; the EMU; nonlinear Kalman filter (search for similar items in EconPapers)
JEL-codes: E43 F36 G12 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
https://www.bank.lv/public_files/images/img_lb/izd ... _ajevskis-vitola.pdf (application/pdf)
Journal Article: A Convergence Model of the Term Structure of Interest Rates (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ltv:wpaper:200901
Access Statistics for this paper
More papers in Working Papers from Latvijas Banka Contact information at EDIRC.
Bibliographic data for series maintained by Konstantins Benkovskis ().