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- Publisher
- Springer Journals
- Copyright
- Copyright © 1999 by Kluwer Academic Publishers
- Subject
- Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
- ISSN
- 0924-865X
- eISSN
- 1573-7179
- DOI
- 10.1023/A:1008302525246
- Publisher site
- See Article on Publisher Site
Abstract
This paper presents a coherent nonlinear interest rate model that incorporates the dynamics of the error correction specification into the traditional term structure model. The joint tests based on six Euro-Currency rates indicate that the linear specification should be rejected. The estimated equation suggests that the linear components—the change of the long-term interest rate and the error correcting term are highly significant. The nonlinear components involving the higher order of the independent variables, the cross products, the lagged error squares, and/or the ARCH effect also present significant explanatory power for predicting short-term Euro-Currency rate changes, confirming the non-linear specifications.
Journal
Review of Quantitative Finance and Accounting – Springer Journals
Published: Oct 21, 2004