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Corrigendum To "A Gaussian Approach For Continuous Time Models Of The Short Term Interest Rate", Peter C. B. Phillips, Jun Yu
Corrigendum To "A Gaussian Approach For Continuous Time Models Of The Short Term Interest Rate", Peter C. B. Phillips, Jun Yu
Research Collection School Of Economics
An error is corrected in Yu and Phillips (2001) (Econometrics Journal, 4, 210-224) where a time transformation was used to induce Gaussian disturbances in the discrete time equivalent model. It is shown that the error process in this model is not a martingale and the Dambis, Dubins-Schwarz (DDS) theorem is not directly applicable. However, a detrended error process is a martingale, the DDS theorem is applicable, and the corresponding stopping time correctly induces Gaussianity. We show that the two stopping time sequences differ by O(a2), where a is the pre-specified normalized timing constant.
Gaussian Estimation Of Continuous Time Models Of The Short Term Interest Rate, Jun Yu, Peter C. B. Phillips
Gaussian Estimation Of Continuous Time Models Of The Short Term Interest Rate, Jun Yu, Peter C. B. Phillips
Research Collection School Of Economics
This paper proposes a Gaussian estimator for nonlinear continuous time models of the short term interest rate. The approach is based on a stopping time argument that produces a normalizing transformation facilitating the use of a Gaussian likelihood. A Monte Carlo study shows that the finite sample performance of the proposed procedure offers an improvement over the discrete approximation method proposed by Nowman (1997). An empirical application to U.S. and British interest rates is given.