Discussion paper

DP4835 The Role of Asymmetries and Regime Shifts in the Term Structure of Interest Rates

We examine the relationship between interest rates of different maturities for the US, Germany and Japan over the period 1982-2000, using a general, multivariate vector equilibrium correction modelling framework capable of simultaneously allowing for asymmetric adjustment and regime shifts. This approach has a very general underlying theoretical rationale that allows for time-varying term premia and other short-run deviations from the expectations model of the term structure. The resulting non-linear models provide good in-sample fits, display regime switches closely related to key state variables driving monetary policy decisions and have satisfactory out-of-sample forecasting properties.

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Citation

Taylor, M, R Clarida, L Sarno and G Valente (eds) (2005), “DP4835 The Role of Asymmetries and Regime Shifts in the Term Structure of Interest Rates”, CEPR Press Discussion Paper No. 4835. https://cepr.org/publications/dp4835