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 C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1752.
Date of creation: Nov 1997
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Other versions of this item:
- Stefan Gerlach & Frank Smets, 1997. "Exchange rate regimes and the expectations hypothesis of the term structure," BIS Working Papers 43, Bank for International Settlements.
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
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