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Modeling the time-varying volatility of the paper–bill spread |
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| Authors: | Farooq Malik Bradley T. Ewing Jamie B. Kruse Gerald J. Lynch |
| Affiliation: | 1. Department of Economics and Finance, College of Business, University of Southern Mississippi, 118 College Drive #5072, Hattiesburg, MS 39406, United States;2. Area of Information Systems and Quantitative Sciences, Rawls College of Business, Texas Tech University, Lubbock, TX 79409-2101, United States;3. Department of Economics, East Carolina University, Greenville, NC 27858-4353, United States;4. Krannert School of Management, Department of Economics, Purdue University, W. Lafayette, IN 47907, United States |
| Abstract: | The spread between the rates on commercial paper and Treasury bills has received considerable attention in the literature for its role as an indicator of real economic activity. In this paper we empirically examine what happens when the volatility of the spread changes over time. We estimate a nonlinear model that enables us to discern the asymmetric impact of negative and positive shocks to the spread. We find that a positive shock has a larger impact on the volatility of the spread than does a negative shock. |
| Keywords: | Paper– bill spread Volatility EGARCH |
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