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Time Scale Analysis of Interest Rate Spreads and Output Using Wavelets
Polytechnic University of Marche, Ancona 60121, Italy
New York University, New York, NY 10003, USA
New School, New York, NY 10011, USA
* Author to whom correspondence should be addressed.
Received: 16 February 2013; in revised form: 18 March 2013 / Accepted: 28 March 2013 / Published: 23 April 2013
Abstract: This paper adds to the literature on the information content of different spreads for real activity by explicitly taking into account the time scale relationship between a variety of monetary and financial indicators (real interest rate, term and credit spreads) and output growth. By means of wavelet-based exploratory data analysis we obtain richer results relative to the aggregate analysis by identifying the dominant scales of variation in the data and the scales and location at which structural breaks have occurred. Moreover, using the “double residuals” regression analysis on a scale-by-scale basis, we find that changes in the spread in several markets have different information content for output at different time frames. This is consistent with the idea that allowing for different time scales of variation in the data can provide a fruitful understanding of the complex dynamics of economic relationships between variables with non-stationary or transient components, certainly richer than those obtained using standard time domain methods.
Keywords: wavelet transform; interest rate spreads; output growth
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MDPI and ACS Style
Gallegati, M.; Ramsey, J.B.; Semmler, W. Time Scale Analysis of Interest Rate Spreads and Output Using Wavelets. Axioms 2013, 2, 182-207.
Gallegati M, Ramsey JB, Semmler W. Time Scale Analysis of Interest Rate Spreads and Output Using Wavelets. Axioms. 2013; 2(2):182-207.
Gallegati, Marco; Ramsey, James B.; Semmler, Willi. 2013. "Time Scale Analysis of Interest Rate Spreads and Output Using Wavelets." Axioms 2, no. 2: 182-207.