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Mean reversion in US and international short rates

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  • Christiansen, Charlotte

Abstract

We extend the CKLS one factor short rate model to include nonlinear mean reversion in a new way. We allow for extreme value mean reversion by including the smallest short rate during the previous year in the mean equation. The US short rate is found to exhibit extreme value mean reversion. The evidence of mean reversion varies across the short rates in the US and five other major markets (Canada, Germany, Japan, Switzerland, and the UK).

Suggested Citation

  • Christiansen, Charlotte, 2010. "Mean reversion in US and international short rates," The North American Journal of Economics and Finance, Elsevier, vol. 21(3), pages 286-296, December.
    • Handle: RePEc:eee:ecofin:v:21:y:2010:i:3:p:286-296
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    More about this item

    Keywords

    Short term interest rate Mean reversion Extreme value Nonlinearity;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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