Fractional integration and the volatility of UK interest rates

Using fractional integration and GARCH modeling techniques, this paper investigates the dynamic properties of UK interest rates. We find evidence that, contrary to previous studies for the US and Canada, short rates are more nonstationary compared to longer rates. Further, differences in conditional volatility exist between rates of different maturities. We posit that the dynamics of interest rates may be both maturity-specific and country-specific and any a priori generalizing assumptions may be misleading.