Using fractionally integrated semiparametric techniques

Authors: Luis A. Gil-Alana

Abstract:

We examine in this article the monthly structure of the US and the UK interest rates by means of using fractionally integrated semiparametric techniques. The results based on the quasi maximum likelihood estimate of Robinson (QMLE, 1995) indicate that the order of integration of both series is higher than 1, especially for the US, with the degree of integration oscillating around 1.23. For the UK, this value is around 1.07. Similar results are obtained when using a parametric testing procedure of Robinson (1994), though with this method, the unit root null hypothesis cannot be rejected for the UK. In conclusion, both series are nonstationary and non-meanreverting.

Keywords: Long memory; Fractional integration; Interest rates.

JEL Classification: C22.