The term structure of interest rates across frequencies
AbstractThis paper tests the expectations hypothesis (EH) of the term structure of interest rates in US data, using spectral regression techniques that allow us to consider different frequency bands. We find a positive relation between the term spread and the change in the long-term interest rate in a frequency band of 6 months to 4 years, whereas the relation is negative at higher and lower frequencies. We confirm that the variance of term premia relative to expected changes in long-term interest rates dominates at high and low frequencies, leading the EH to be rejected in those bands but not in the intermediate frequency band. JEL Classification: C22, E43
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Bibliographic InfoPaper provided by European Central Bank in its series Working Paper Series with number 0976.
Date of creation: Dec 2008
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Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-03 (All new papers)
- NEP-CBA-2009-01-03 (Central Banking)
- NEP-FMK-2009-01-03 (Financial Markets)
- NEP-MON-2009-01-03 (Monetary Economics)
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- Donati, Paola & Donati, Francesco, 2008. "Modelling and Forecasting the Yield Curve under Model uncertainty," Working Paper Series 0917, European Central Bank.
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