Nonlinear Short-Term Interest Rate Dynamics

Recent empirical researches have examined the relationship between US short-term interest rates using linear as well nonlinear econometric tools. The main objective of this paper is to employ a new dynamic model that combines the bivariate noisy Mackey-Glass and the BEKK GARCH processes (recently proposed by Kyrtsou and Labys, 2006, 2007), in the aim to determine the importance of observed non-linear dependences in the evolution of dynamic correlations between historical data for US effective Federal fund rates and 3-month T-Bill rates