NONLINEAR INTEREST-RATE DYNAMICS AND IMPLICATIONS FOR THE TERM STRUCTURE

This paper explores nonlinear dynamics in the time series of the short -term interest rate in the United States. The proposed model is an aut oregressive threshold model augmented by conditional heteroskedasticit y. The performance of the model is evaluated by considering its implic ations for the term structure of interest rates. The nonlinear dynamic s imply a form of nonlinearity in the levels relation between the long and the short rate.