The Expectation Theory: Tests on French, German, and American Euro-Rates
AbstractThis paper deals with tests of the expectations hypothesis of the term structure on French, German, UK and US short-term interest rates. Three tests are examined: the first is based on forward rates and the other two are based on the interest rates spread. First, we show that the puzzle highlighted by Campbell and Shiller (1991) for US data does not hold in the cases of French and UK short-term rates. Second, we propose tests for the expectations hypothesis based on error-correction specifications. These tests are shown to be much more favorable for the theory and the initial puzzle disappears.
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Bibliographic InfoPaper provided by Banque de France in its series Working papers with number 35.
Length: 26 pages
Date of creation: 1996
Date of revision:
Term structure of interest rates ; Expectations hypothesis ; Error-correction model.;
Find related papers by JEL classification:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
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