A comprehensive analysis of the short-term interest-rate dynamics
نویسندگان
چکیده
This paper provides a comprehensive analysis of the short-term interest-rate dynamics based on three different data sets and two flexible parametric specifications. The significance of nonlinearity in the short-rate drift declines with increasing maturity for the interest-rate series used in the study. Using a flexible diffusion specification and incorporating GARCH volatility and non-normal innovation reduce the need for a nonlinear drift specification. Finally, the nonlinear drift specification performs better than the linear drift specification only when the short-term interest-rate levels reach historical highs. 2005 Elsevier B.V. All rights reserved. JEL classification: C13; C22; G12
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