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Interest Rates and Business Cycle Fluctuations: A Focus on Higher Moments

Abstract This work aims at analysing the relationships between market interest rates and the business fluctuations. Asymmetries in the business cycles affect saving decisions of agents and interest rates. The relationships between interest rates and the expected value, the variance, the skewness and the kurtosis of the business cycle are demonstrated. The process for the business cycle variable is estimated by a Markov-switching model which allows explicitly to consider the alternation of the business cycles phases. Afterwards, conditional, time-varying moments of the business cycles are calculated. Then, these conditional moments are used as regressors for interest rates.