Abstract
In the process of China's marketization of interest rates, researching the characteristics of interest rates has very important theoretical and practical significance. Based on Chinese interbank repo interest rates, the characteristics of daily interest rates and monthly interest rates and their spreads have been researched, and unit root tests are paid to the level, the first difference and the spread of daily interest rates and monthly interest rates based on the traditional method and the exponential smooth transition autoregressive method (ESTAR) respectively. The results show: Firstly, as for different term of repo interest rates, the characteristics are different. Secondly, both lists of daily rates and monthly rates are integrated of order 1. Thirdly, the spread of daily interest rates and monthly interest rates is not stationary by use of ADF, but stationary by use of ESTAR. Finally, the long-run equilibrium relationship between daily repo interest rates and monthly repo interest rates is stable with nonlinear adjustment.
Highlights
Term structure of interest rates provides a characterization of interest rates as a function of maturity
The purpose of this paper is to investigate the term structure of interest rates in china using the unit root test in the exponential nonlinear smooth transition autoregressive (ESTAR) framework, as proposed by Kapetanios (2003)
Kapetanios(2003) and Daiki Maki (2005,2006) consider a null hypothesis that is a special case of a linear unit root which in terms of the above model implies that φ = 0 and θ = 0 .Under the alternative hypothesis (φ = 0 butθ > 0 ), yt follows a nonlinear but globally stationary process provided that −2 < γ < 0, which we assume holds
Summary
Term structure of interest rates provides a characterization of interest rates as a function of maturity. Maki, Daiki (2005, 2006) [12, 13] investigated the term structure of interest rates in Japan using the nonlinear unit root test: ESTAR His results provide strong evidence against the unit root of the yield spread between long-term and short-term interest rates, compared with standard unit root tests assuming only linear adjustment. The purpose of this paper is to investigate the term structure of interest rates in china using the unit root test in the exponential nonlinear smooth transition autoregressive (ESTAR) framework, as proposed by Kapetanios (2003). Their ESTAR approach tests for a unit root against a nonlinear stationary process based on the STAR process.
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