Mean Reversion in US and International Short Rates

27 Pages Posted: 9 Aug 2008

Date Written: August 8, 2008

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.

Keywords: Short term interest rate, Mean reversion, Extreme value, Nonlinearity

JEL Classification: G12, G15, E43, C13

Suggested Citation

Christiansen, Charlotte, Mean Reversion in US and International Short Rates (August 8, 2008). Available at SSRN: https://ssrn.com/abstract=1212529 or http://dx.doi.org/10.2139/ssrn.1212529

Charlotte Christiansen (Contact Author)

Aarhus University - CREATES ( email )

Fuglesangs Alle 4
Aarhus V, DK 8210
Denmark

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