Exchange rate regimes and the expectations hypothesis of the term structure
AbstractThis paper uses weekly data on short-term eurorates for ten countries for the period 1979-96 to document that the ability of the expectations hypothesis (EH) to account for movements in the term structure is greater, and that short- term interest rates are more predictable, under fixed than under floating exchange rates. The paper also shows that the higher predictability does not arise solely because of monetary policy responses to speculative pressures in the foreign exchange markets: while it is more difficult to reject the EH in periods of exchange market turmoil, the EH is not rejected in tranquil periods.
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Bibliographic InfoPaper provided by Bank for International Settlements in its series BIS Working Papers with number 43.
Length: 30 pages
Date of creation: Jul 1997
Date of revision:
Other versions of this item:
- Gerlach, Stefan & Smets, Frank, 1997. "Exchange Rate Regimes and the Expectations Hypothesis of the Term Structure," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1752, C.E.P.R. Discussion Papers.
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
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