Please use this identifier to cite or link to this item: http://bura.brunel.ac.uk/handle/2438/14474
Title: Persistence and cycles in the US Federal Funds rate
Authors: Caporale, GM
Gil-Alana, LA
Keywords: Federal Funds rate;Persistence;Cyclical behaviour;Fractional integration
Issue Date: 2017
Publisher: Elsevier
Citation: International Review of Financial Analysis, (2017)
Abstract: This paper uses long-range dependence techniques to analyse two important features of the US Federal Funds effective rate, namely its persistence and its cyclical behaviour. It examines annual, monthly, bi-weekly and weekly data, from 1954 until 2017. Two models are considered. One is based on an I(d) specification with AR(2) disturbances and the other one on two fractional differencing structures, one at the zero and the other at a cyclical frequency. Thus, the two approaches differ in the way the cyclical component of the process is modelled. In both cases we obtain evidence of long memory and fractional integration with cycles repeating approximately every 8 years. The in-sample goodness-of-fit analysis supports the second specification in the majority of cases. An out-of-sample forecasting experiment also suggests that the long-memory model with two fractional differencing parameters is the most adequate one, especially over long horizons.
URI: http://bura.brunel.ac.uk/handle/2438/14474
ISSN: 1057-5219
Appears in Collections:Dept of Economics and Finance Research Papers

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