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Volatility Estimates of the Short-Term Interest Rate with an Application to German Data

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Dankenbring, H. Volatility Estimates of the Short-Term Interest Rate with an Application to German Data. Credit and Capital Markets – Kredit und Kapital, 33(4), 548-570. https://doi.org/10.3790/ccm.33.4.548
Dankenbring, Henning "Volatility Estimates of the Short-Term Interest Rate with an Application to German Data" Credit and Capital Markets – Kredit und Kapital 33.4, 2000, 548-570. https://doi.org/10.3790/ccm.33.4.548
Dankenbring, Henning (2000): Volatility Estimates of the Short-Term Interest Rate with an Application to German Data, in: Credit and Capital Markets – Kredit und Kapital, vol. 33, iss. 4, 548-570, [online] https://doi.org/10.3790/ccm.33.4.548

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Volatility Estimates of the Short-Term Interest Rate with an Application to German Data

Dankenbring, Henning

Credit and Capital Markets – Kredit und Kapital, Vol. 33 (2000), Iss. 4 : pp. 548–570

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Henning Dankenbring, Frankfurt/M.

References

  1. Andersen, T. G./Lund, J. (1997): Estimating Continuous-Time Stochastic Volatility Models of the Short-Term Interest Rate. Journal of Econometrics, Vol. 77, 343-377.  Google Scholar
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Abstract

This paper proposes a procedure for testing alternative specifications of the short-term interest rate’s dynamics which takes into account the non-stationarity of the interest rate process for certain restrictions, i.e. the traditional test statistic has a non-standard distribution. Moreover, we do not take the specification of the mean equation as given by the theory but rather base the choice of the lag structure on a robust Lagrange Multiplier test. In contrast to U.S. data we find that the volatility depends either on the interest rate level or on information shocks but not on both. Finally, we propose to describe the short-term interest rate’s dynamics by means of an AR(1) model with stochastic volatility. (JEL C2, E4, G1)