Economics, Econometrics and Finance
4 years ago

New study reveals hidden patterns in US interest rates data

RePEc: Research Papers in Economics
Markov Switching Risk Premium and the term structure of interest rates. Empirical evidence from US post-war interest rates
Jesús Vázquez, Marı́a-José Gutiérrez

Paper Summary

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The article explores how interest rates change over time in the US after World War II. It uses a model that considers how short-term interest rates are influenced by the difference between long-term and short-term rates. The study also looks at how risk affects interest rates by using a model that switches between two different states. The results suggest that this two-state model fits the data better than a simpler model. The study shows that there are two distinct states that have different effects on interest rates.