Estimating continuous-time stochastic volatility models of the short-term interest rate
The Efficient Method of Moments procedure of A.R. Gallant and G.E. Tauchen was used to gather consistent parameter estimates of continuous-time stochastic volatility diffusions for the US short-term interest rate. The preferred model exhibited mean reversion and incorporated 'level effects' and stochastic volatility in the diffusion function. While extensive diagnostics showed that the generalized autoregressive conditionally heteroskedastic (GARCH) models were not useful for the analysis, the Cox-Ingersoll-Ross model and the 'Level-EGARCH' models performed very well.
Publication Name: Journal of Econometrics
Consumer behavior and the stickiness of credit-card interest rates
Researcher Lawrence Ausubel posited that the credit-card follows the imperfect competitive model because cardholders do not have the behaviors assumed in perfect competitive models. Deviations from the perfectly competitive model were hypothesized to be the result of consumers facing search costs, consumers facing switch costs or firms facing an adverse-selection problem if they unilaterally cut their interest rates. Using data from the 1989 Survey of Consumer Finances of the Federal Reserve, empirical evidence is found in support of this notion.
Publication Name: American Economic Review
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