Working Papers, Department of Economics, Lund University
Regime Switches in Swedish Interest Rates
Abstract: This paper examines the forecasting properties of a Markov
regime-switching model applied to Swedish interest rate volatility. A Monte
Carlo testing procedure is used to arrive at a three state specification
that is able to capture the high degree of leptokurtosis in the data
without additional modelling of conditional heteroskedasticity. The final
specification is shown to possess good forecasting properties both in
general and for specific samples and horizons, something that the benchmark
processes are unable to achieve.
Keywords: Regime switching; forecasting; volatility; (follow links to similar papers)
JEL-Codes: C22; C52; E43; (follow links to similar papers)
20 pages, February 26, 2002, Revised March 4, 2005
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