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The Term Structure of Interest Rates in the UK

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  • MacDonald, Ronald
  • Speight, Alan E H

Abstract

This paper presents new tests of the efficient markets view of the interest rate term structure utilizing recently developed cointegration methodology in a bivariate autoregressive system consisting of the "spread" between long and short interest rates and the change in the Treasury Bill rate. The efficient markets restrictions on the bivariate autoregressive system are supported by U.K. data from 1963:1 to 1987:1. Further support is obtained from som e simple Granger-causality tests. However, volatility statistics give rather mixed results. On balance, the authors' findings suggest a risk-adjusted expectations approach to the term structure. Copyright 1988 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Bulletin of Economic Research.

Volume (Year): 40 (1988)
Issue (Month): 4 (October)
Pages: 287-99

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Handle: RePEc:bla:buecrs:v:40:y:1988:i:4:p:287-99

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0307-3378

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Cited by:
  1. Shen Chung-Hua, 1998. "The Term Structure of Taiwan Money Market Rates And Rational Expectation," International Economic Journal, Taylor & Francis Journals, vol. 12(1), pages 105-119.
  2. Kamae, Hiroshi, 1989. "Wald Tests of the Pure Expectations Hypothesis of the Term Structure of Interest Rates," Hitotsubashi Journal of commerce and management, Hitotsubashi University, vol. 24(1), pages 53-63, December.
  3. Stefan Gerlach, 1996. "Monetary policy and the behaviour of interest rates: are long rates excessively volatile?," BIS Working Papers 34, Bank for International Settlements.
  4. Brooks, Chris & Rew, Alistair G., 2002. "Testing for non-stationarity and cointegration allowing for the possibility of a structural break: an application to EuroSterling interest rates," Economic Modelling, Elsevier, vol. 19(1), pages 65-90, January.
  5. Magdalena Massot Perelló & Juan M. Nave Pineda, 2003. "La hipótesis de las expectativas en el largo plazo: evidencia en el mercado español de deuda pública," Investigaciones Economicas, Fundación SEPI, vol. 27(3), pages 533-564, September.
  6. Holmes, Mark J. & Otero, Jesús & Panagiotidis, Theodore, 2011. "The term structure of interest rates, the expectations hypothesis and international financial integration: Evidence from Asian economies," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 679-689, October.
  7. A. Arize & J. Malindretos & Z. Obi, 2002. "Long- and short-term interest rates in 19 countries: Tests of cointegration and parameter instability," Atlantic Economic Journal, International Atlantic Economic Society, vol. 30(2), pages 105-120, June.
  8. Ross Guest & Alan McLean, 1998. "New evidence on the expectations theory of the term structure of Australian Commonwealth Government Treasury yields," Applied Financial Economics, Taylor & Francis Journals, vol. 8(1), pages 81-87.
  9. Anonymous, 1993. "Expectations and the term structure of interest rates," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 56, December.

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