The volatility of Greek interbank rates : a continuous time analysis

In this paper we investigate the relationship between the volatility of Greek interbank rates and the level of rates by estimating the important CKLS interest rate model using the estimation method of (Nowman, 1997). We also estimate the interest rate models of Merton, Vasicek, CIRSR, Dothan, GBM, Brennan and Schwartz, CIRVR, and CEV models. We find the volatility of short-term rates is highly sensitive to the level of rates in Greece and is much higher than is usually assumed by these commonly used models in the financial markets.peer-reviewe

Implied continuous time lag distributions: further evidence for the UK

This paper presents implied continuous time lag distributions of the main UK economic variables obtained from recent estimates by Nowman of the Bergstrom, Nowman and Wymer continuous time dynamic macroeconometric model of the UK economy. The lag distributions provide further evidence of the richer dynamic specification allowed for in second-order continuous time macroeconomic models

Continuous-time short term interest rate models

A number of continuous time models of the short-term interest rate are estimated using recently developed Gaussian estimation methods on four currencies interest rates. Results indicate that for the US and Japanese currencies currently used models perform well in capturing the adjustment of the interest rate process. It is also found that for the French and Italian currencies the dependence of volatility on the level of the interest rate is significantly higher than is usually assumed by well-known models.

REX BERGSTROM’S CONTRIBUTIONS TO CONTINUOUS TIME MACROECONOMETRIC MODELING

This paper reviews the contributions of Rex Bergstrom to the development of continuous time dynamic disequilibrium macroeconomic modeling since the early 1960s. The models provide an elegant integration of economic theory with analysis of steady state and stability properties. The subsequent contributions of his Ph.D. students, spawned by Bergstrom’s work over the years, is also reviewed. It was Bergstrom’s early pioneering vision 40 years ago of formulating and estimating continuous time models that underlies much of the research in that area of econometrics and finance today.

Econometric Analysis of a Continuous Time Multi-Factor Generalized Vasicek Term Structure Model: International Evidence

In this paper we apply the Kalman filter to a state formulation of a multi-factor term structure model allowing for measurement errors in the data. We estimate one and two factor models using panel data allowing the cross sectional and dynamic implications of the yield curve to be taken into account. The panel data approach has the advantage of using all the information in the yield curve across and over time compared to a time series approach only. The models are estimated on data for the Belgian franc, British pound, Danish krone, Dutch guilder, French franc, German mark, Japanese yen, Italian lira and Swiss franc. Our empirical results indicate that the two factor model represents a good description of the yield curves in these markets. Copyright Kluwer Academic Publishers 1998Kalman filtering, measurement errors, state space model, term structure,

Forecasting with the almost ideal demand system: evidence from some alternative dynamic specifications

The almost ideal demand system is used as a representation of long run demands in discrete time and continuous time error correction models to produce forecasts of budget shares beyond the sample period. The estimated models are subjected to a battery of tests, and an analysis of the forecasts indicates that continuous time adjustment mechanisms, based around fully modified estimates of the long run preference parameters, provide a remarkably accurate method of forecasting budget shares.

A Note on Gaussian Estimation of the CKLS and CIR Models with Feedback Effects for Japan

In this note we extend the Gaussian estimation of two factor CKLS and CIR models recently considered in Nowman, K. B. (2001, Gaussian estimation and forecasting of multi-factor term structure models with an application to Japan and the United Kingdom, Asia Pacif. Financ. Markets 8, 23–34) to include feedback effects in the conditional mean as was originally formulated in general continuous time models by Bergstrom, A. R. (1966, Non-recursive models as discrete approximations to systems of stochastic differential equations, Econometrica 34, 173–182) with constant volatility. We use the exact discrete model of Bergstrom, A. R. (1966, Non-recursive models as discrete approximations to systems of stochastic differential equations, Econometrica 34, 173–182) to estimate the parameters which was first used by Brennan, M. J. and Schwartz, E. S. (1979, A continuous time approach to the pricing of bonds, J. Bank. Financ. 3, 133–155) to estimate their two factor interest model but incorporating the assumption of Nowman, K. B. (1997, Gaussian estimation of single-factor continuous time models of the term structure of interest rates, J. Financ. 52, 1695–1706; 2001, Gaussian estimation and forecasting of multi-factor term structure models with an application to Japan and the United Kingdom, Asia Pacif. Financ. Markets 8, 23–34). An application to monthly Japanese Euro currency rates indicates some evidence of feedback from the 1-year rate to the 1-month rate in both the CKLS and CIR models. We also find a low level-volatility effect supporting Nowman, K. B. (2001, Gaussian estimation and forecasting of multi-factor term structure models with an application to Japan and the United Kingdom, Asia Pacif. Financ. Markets 8, 23–34). Copyright Springer Science + Business Media, Inc. 2003CKLS, feedback effects, Gaussian estimation, interest rates,