Econometric modelling of the short-term interest rate : an application to Portugal

Cassola, Nuno; Nicolau, João; Sousa, João

http://hdl.handle.net/10400.5/27607

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Authors

Cassola, Nuno

Nicolau, João

Sousa, João

Abstract(s)

In this paper we estimate and compare, for Portugal, several econometric models of the short-term interest rate inspired in the continuous-time models of Vasicek, and Cox, Ingersoll and Ross. The models are first estimated using the Generalised Method of Moments. The empirical results motivate estimating the short-term interest rate process using a regime switching technique where regimes follow a Markov chain. Some applications to term structure modelling and contingent claim valuation are carried out.

Keywords

Nominal Interest Rate Modelling Generalised Method of Moments Regime Switching Models Markov Chain Conditional Volatility Portugal

URI

http://hdl.handle.net/10400.5/27607

Citation

Cassola, Nuno, João Nicolau and João Sousa .(1997). “Econometric modelling of the short-term interest rate : an application to Portugal “. Banco de Portugal - Estudos e Documentos de Trabalho, Nº 5-97.