Markov Switching Risk Premium and the term structure of interest rates. Empirical evidence from US post-war interest rates

This paper considers the basic present value model of interest rates under rational expectations with two additional features. First, following McCallum (1994), the model assumes a policy reaction function where changes in the short-term interest rate are determined by the long-short spread. Second, the short-term interest rate and the risk premium processes are characterized by a Markov regime-switching model. Using US post-war interest rate data, this paper finds evidence that a two-regime switching model fits the data better than the basic model. The estimation results also show the presence of two alternative states displaying quite different features.

The changing behaviour of the term structure of post-war US

Using U.S. interest rate data covering the period 1950:1-1992:7, this paper tests the rational expectations model of the term structure of interest rates. We show evidence that the rational expectations model of the term structure is supported by the data during the seventies and a period lasting from the mid-eighties to the end of the sample. However, during the …fties, sixties and a period that covers most of the Volcker’s office term (from September 1979 to April 1986) the term structure model is rejected by the data. Moreover, wefind evidence of regime changes in the short-term rate process and the term structure of interest rates. These regime switches roughly coincide with changes in the Federal Reserve chairman. The switches in monetary policy taking place when the chairmanship of the Federal Reserve changes therefore seem to play an important role in characterizing the term structure of interest rates.

Switching Regimes in the Term Structure of Interest Rates During U.S. Post-War: A case for the Lucas proof equilibrium?

Published as an article in: Studies in Nonlinear Dynamics & Econometrics, 2004, vol. 8, issue 1, pages 5.

Approximate knowledge of rationality and correlated equilibria

We extend Aumann's [3] theorem deriving correlated equilibria as a consequence of common priors and common knowledge of rationality by explicitly allowing for non-rational behavior. We replace the assumption of common knowledge of rationality with a substantially weaker notion, joint p-belief of rationality, where agents believe the other agents are rational with probabilities p = (pi)i2I or more. We show that behavior in this case constitutes a constrained correlated equilibrium of a doubled game satisfying certain p-belief constraints and characterize the topological structure of the resulting set of p-rational outcomes. We establish continuity in the parameters p and show that, for p su ciently close to one, the p-rational outcomes are close to the correlated equilibria and, with high probability, supported on strategies that survive the iterated elimination of strictly dominated strategies. Finally, we extend Aumann and Dreze's [4] theorem on rational expectations of interim types to the broader p-rational belief systems, and also discuss the case of non-common priors.

A rational fraction polynomials model to study vertical dynamic wheel-rail interaction

This paper presents a model designed to study vertical interactions between wheel and rail when the wheel moves over a rail welding. The model focuses on the spatial domain, and is drawn up in a simple fashion from track receptances. The paper obtains the receptances from a full track model in the frequency domain already developed by the authors, which includes deformation of the rail section and propagation of bending, elongation and torsional waves along an infinite track. Transformation between domains was secured by applying a modified rational fraction polynomials method. This obtains a track model with very few degrees of freedom, and thus with minimum time consumption for integration, with a good match to the original model over a sufficiently broad range of frequencies. Wheel-rail interaction is modelled on a non-linear Hertzian spring, and consideration is given to parametric excitation caused by the wheel moving over a sleeper, since this is a moving wheel model and not a moving irregularity model. The model is used to study the dynamic loads and displacements emerging at the wheel-rail contact passing over a welding defect at different speeds.

Common Fixed Points of Generalized Rational Type Cocyclic Mappings in Multiplicative Metric Spaces

The aim of this paper is to present fixed point result of mappings satisfying a generalized rational contractive condition in the setup of multiplicative metric spaces. As an application, we obtain a common fixed point of a pair of weakly compatible mappings. Some common fixed point results of pair of rational contractive types mappings involved in cocyclic representation of a nonempty subset of a multiplicative metric space are also obtained. Some examples are presented to support the results proved herein. Our results generalize and extend various results in the existing literature.