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Persistence in US interest rates : is it stable over time?

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Caporale, Guglielmo Maria and Gil-Alana, Luis A. (2008) Persistence in US interest rates : is it stable over time? Centre for International Capital Markets discussion papers, 2008 (12). pp. 1-18. ISSN 1749-3412

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Abstract

This paper analyses persistence in US interest rates. It focuses on the Federal Funds effective rate, whose degree of persistence is modelled using fractional integration, monthly from July 1954 through March 2008. The full-sample estimates of the fractional differencing parameter appear to be very sensitive to the choice of the I(0) error term; specifically, the order of integration is strictly above 1 if the errors are uncorrelated, whilst it is strictly below 1 with autocorrelated disturbances. It is also found that the differencing parameter is not stable over the sample period examined, the degree of persistence of the series decreasing from the beginning of the 80s.

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