Statistical Evidence on the Mean Reversion of Interest Rates
Jan Willem Van den End
De Nederlandsche Bank
March 1, 2011
De Nederlandsche Bank Working Paper No. 284
Based on two hundred years of annual data of the Netherlands , Germany , US and Japan we analyse the mean reversion of long-term interest rates, by unit root tests over rolling windows and taking into account structural breaks and regime changes. While short-term rates and the yield curve tend to revert to their long-term average value, long-term rates can persistently deviate from it. At the outside, we only find weak statistical evidence for mean reversion of long-term rates. Outcomes of smooth transition autoregressive ( STAR ) models for long-term interest rates, indicate that the speed of mean reversion is regime dependent, being stronger when rates are far from their equilibrium value.
Number of Pages in PDF File: 27
Keywords: interest rates, statistical methods, time-series models
JEL Classification: C22, C49, G12working papers series
Date posted: October 29, 2011
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