A Reconciliation of Some Paradoxical Empirical Results on the Expectations Model of the Term Structure
AbstractIn this paper, the authors attempt to reconcile contradictory empirical results for the expectations model of the term structure which are found when it is tested by a variety of methods based on single-equation and vector autoregression (VAR) models. Using monthly data for one-month and three-month interest rates, the authors show that the expectations hypothesis is rejected for the United States and United Kingdom term structures on the basis of some popular tests. However, tests based on VAR models or on instrumental variables regressions of yield spreads on future short rate changes provide no evidence against the expectations model with a random component in the term premium. Copyright 1997 by Blackwell Publishing Ltd
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Bibliographic InfoArticle provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics & Statistics.
Volume (Year): 59 (1997)
Issue (Month): 1 (February)
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- 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.
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- Massimo Guidolin & Daniel L. Thornton, 2010. "Predictions of short-term rates and the expectations hypothesis," Working Papers 2010-013, Federal Reserve Bank of St. Louis.
- Petko Kalev & Brett Inder, 2006. "The information content of the term structure of interest rates," Applied Economics, Taylor and Francis Journals, vol. 38(1), pages 33-45.
- Camarero, Mariam & Tamarit, Cecilio, 2002. "Instability tests in cointegration relationships. An application to the term structure of interest rates," Economic Modelling, Elsevier, vol. 19(5), pages 783-799, November.
- Smant, David / D.J.C., 2010. "Direct tests of the expectations theory of the term structure: Survey expectations, the term premium and coefficient biases," MPRA Paper 19815, University Library of Munich, Germany.
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