Finance Department

 

Date of this Version

1997

Document Type

Article

Citation

Journal of Actuarial Practice 5 (1997), pp. 227-252

Comments

Copyright 1997 Absalom Press

Abstract

Though actuaries have developed several types of stochastic investment models for inflation, stock market returns, and interest rates, there are two commonly used in practice: autoregressive time series models with normally distributed errors, and autoregressive conditional heteroscedasticity (ARCH) models. ARCH models are particularly suited when there is heteroscedasticity in inflation and interest rate series. In such cases nonnormal residuals are found in the empirical data. This paper examines whether Australian univariate inflation and interest rate data are consistent with autoregressive time series and ARCH model assumptions.

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