Statistical Evidence on the Mean Reversion of Interest Rates

Jan Willem van den End
2011 Social Science Research Network  
Based on two hundred years of annual data of the Netherlands, Germany, US and Japan we analyse the mean reversion of long-term interest rates, by unit root tests over rolling windows and taking into account structural breaks and regime changes. While short-term rates and the yield curve tend to revert to their long-term average value, long-term rates can persistently deviate from it. At the outside, we only find weak statistical evidence for mean reversion of long-term rates. Outcomes of smooth
more » ... Outcomes of smooth transition autoregressive (STAR) models for long-term interest rates, indicate that the speed of mean reversion is regime dependent, being stronger when rates are far from their equilibrium value. .
doi:10.2139/ssrn.1950596 fatcat:5evbdolxyrhrxoo2zqo77gwhsy