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Mean Reversion in US and International Short Rates

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  • Charlotte Christiansen

    (School of Economics and Management, University of Aarhus, Denmark and CREATES)

Abstract

In this paper we extend the CKLS one factor short rate model to include extreme value nonlinear mean reversion. Similarly to a recent stock market study, we include the smallest short rate during the previous year in the mean equation. We investigate the US and five other major markets (Canada, Germany, Japan, Switzerland, and the UK). There is extreme value mean reversion in the US short rate. For Japan there is both linear and nonlinear mean reversion. For the remaining short rates there is no evidence of mean reversion.

Suggested Citation

  • Charlotte Christiansen, 2008. "Mean Reversion in US and International Short Rates," CREATES Research Papers 2008-47, Department of Economics and Business Economics, Aarhus University.
    • Handle: RePEc:aah:create:2008-47
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    References listed on IDEAS

    as
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    Cited by:

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    2. Sikora, Grzegorz & Michalak, Anna & Bielak, Łukasz & Miśta, Paweł & Wyłomańska, Agnieszka, 2019. "Stochastic modeling of currency exchange rates with novel validation techniques," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 523(C), pages 1202-1215.
    3. Jha, Veena., 2009. "The effects of fiscal stimulus packages on employment," ILO Working Papers 994338973402676, International Labour Organization.
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    7. Foerster, Stephen R. & Sapp, Stephen G., 2011. "Back to fundamentals: The role of expected cash flows in equity valuation," The North American Journal of Economics and Finance, Elsevier, vol. 22(3), pages 320-343.

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    More about this item

    Keywords

    Short term interest rate; Mean reversion; Extreme value; Nonlinearity;
    All these keywords.

    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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