3,859 research outputs found

    Long-Range Dependence in Daily Interest Rate

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    We employ a number of parametric and non-parametric techniques to establish the existence of long-range dependence in daily interbank o er rates for four countries. We test for long memory using classical R=S analysis, variance-time plots and Lo's (1991) modi ed R=S statistic. In addition we estimate the fractional di erencing parameter using Whittle's (1951) maximum likelihood estimator and we shu e the data to destroy long and short memory in turn, and we repeat our non-parametric tests. From our non-parametric tests we And strong evidence of the presence of long memory in all four series independently of the chosen statistic. We nd evidence that supports the assertion of Willinger et al (1999) that Lo's statistic is biased towards non-rejection of the null hypothesis of no long-range dependence. The parametric estimation concurs with these results. Our results suggest that conventional tests for capital market integration and other similar hypotheses involving nominal interest rates should be treated with cautio

    Optimal Monetary Policy and the Asset Market: A Non-cooperative Game

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    In this paper we construct a model of a policy game in order to analyse the optimal reaction function of the Central Bank to a shock in the asset market. In doing so, we consider three different noncooperative games: Nash equilibrium, Stackelberg equilibrium with “FED” as leader and “ECB” Stacklberg as leader. Three major conclusions can be drawn from our work in the presence of asset market shocks. First, in the Nash equilibrium the ECB will adopt a less restrictive monetary policy compared to the FED’s behaviour. Second, comparing the Nash and Stackelberg non-cooperative equilibria, the Stackelberg solution is certainly superior when the FED is the leader, but the Nash solution is superior for the follower. Finally, irrespective of where the shocks originate, if the FED would choose the Stackelberg leader equilibrium the ECB would minimize its social loss along with a lower level of interest rates

    Identifying asymmetric, multi-period Euler equations estimated by non-linear IV/GMM

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    In this article, the identification of instrumental variables and generalized method of moment (GMM) estimators with multi-period perceptions is discussed. The state space representation delivers a conventional first order condition that is solved for expectations when the Generalized Bézout Theorem holds. Here, it is shown that although weak instruments may be enough to identify the parameters of a linearized version of the Quasi-Reduced Form (Q-RF), their existence is not sufficient for the identification of the structural model. Necessary and sufficient conditions for local identification of the Quasi-Structural Form (Q-SF) derive from the product of the data moments and the Jacobian. Satisfaction of the moment condition alone is only necessary for local and global identification of the Q-SF parameters. While the conditions necessary and sufficient for local identification of the Q-SF parameters are only necessary to identify the expectational model that satisfies the regular solution. If the conditions required for the decomposition associated with the Generalized Bézout Theorem are not satisfied, then limited information estimates of the Q-SF are not consistent with the full solution. The Structural Form (SF) is not identified in the fundamental sense that the Q-SF parameters are not based on a forward looking expectational model. This suggests that expectations are derived from a forward looking model or survey data used to replace estimated expectations