The Federal Reserve Board eagle logo links to home page
Finance and Economics Discussion Series
The Finance and Economics Discussion Series logo links to FEDS home page Tests for Non-Linear Dynamics in Systems of Non-Stationary Economic Time Series: The Case of Short-Term U.S. Interest Rates
Barry E. Jones and Travis D. Nesmith

Abstract: Using Hall and Heyde's (1980) representation theorem, we show that the stationary co-integration relations of an integrated system are generally non-linear stochastic processes. We propose a sequential non-parametric procedure to test stationary co-integration relations for non-linear dynamics, and apply this procedure to short term U.S. interest rates as an illustration. We demonstrate that the weekly federal funds rate is co-integrated with Treasury bill and commercial paper rates and that the co-integration relations are non-linear.

Keywords: Non-linear dynamics, co-integration interest rates, bispectrum

Full paper (608 KB PDF)

Home | FEDS | List of 1999 FEDS papers
To comment on this site, please fill out our feedback form.
Last update: December 21, 1999