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The term structure of interest rates across frequencies

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  • Assenmacher-Wesche, Katrin
  • Gerlach, Stefan

Abstract

This 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 Info

Paper provided by European Central Bank in its series Working Paper Series with number 0976.

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Date of creation: Dec 2008
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Handle: RePEc:ecb:ecbwps:20080976

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Keywords: Expectations theory of the term structure; frequency domain; Interest Rates; spectral regression;

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Cited by:
  1. 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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