Melbourne Institute Working Paper Series Database (1984 - 2010)

Melbourne Institute Working Paper No. 14/2005

Is There a Unit Root in East-Asian Short-Term Interest Rates?

by

Chew Lian Chua and Sandy Suardi

Date: September 2005

Abstract: This paper tests for the presence of nonlinear dynamics in selected Asian short rates and employs a regime varying unit root test to detect non-stationarity for distinct regimes. Nonlinearities in the form of Markov-switching dynamics are found in all short rates sample. The mean-reverting behaviour of interest rates is dependent on both the level and volatility of interest rates. The occasional random walk and mean-reverting dynamics of short rates are attributed to the macroeconomic fundamentals, exchange rate regimes and monetary policy objectives in these economies.

 

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