publication . Preprint . 2012

Term Structure Persistence

Mirko Abbritti; Luis Gil-Alana; Yuliya Lovcha; Antonio Moreno;
Open Access
  • Published: 21 Dec 2012
Abstract
Stationary I(0) models employed in yield curve analysis typically imply an unrealistically low degree of volatility in long-run short-rate expectations due to fast mean reversion. In this paper we propose a novel multivariate affine term structure model with a two-fold source of persistence in the yield curve: Long-memory and short-memory. Our model, based on an I(d) specification, nests the I(0) and I(1) models as special cases and the I(0) model is decisively rejected by the data. Our model estimates imply both mean reversion in yields and quite volatile long-distance short-rate expectations, due to the higher persistence imparted by the long-memory component....
Subjects
free text keywords: Fixed Income Securities, Yield Curve, Affine Term Structure, Fractional Integration, Term Premium, jel:G1, jel:E4, jel:C3

1This point has later been illustrated in a variety of contexts by Kozicki and Tinsley (2001), Gurkaynak, Sack, and Swanson (2005), Backus and Wright (2007), Cochrane and Piazzesi (2008) and Gil-Alana and Moreno (2012).

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Kozicki, Sharon, and Peter A. Tinsley, 2001, Shifting Endpoints in the Term Structure of Interest Rates, Journal of Monetary Economics 47, 613{652.

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publication . Preprint . 2012

Term Structure Persistence

Mirko Abbritti; Luis Gil-Alana; Yuliya Lovcha; Antonio Moreno;