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Alternative Tests of Rational Expectations Models: The Case of the Term Structure

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  • Robert J. Shiller

Abstract

A linearized version of the rational expectations models of the term structure is put forth in terms of a complete vector of equally spaced observations along the yield curve. A data series on intermediate maturity yields which meets the specifications of the model is presented. The model is tested against a specific and easily interpreted alternative. Earlier studies of rational expectations models, which used "volatility tests" or "likelihood ratio tests," are discussed.

Suggested Citation

  • Robert J. Shiller, 1980. "Alternative Tests of Rational Expectations Models: The Case of the Term Structure," NBER Working Papers 0563, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0563
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    1. Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-436, June.
    2. Bildersee, John S, 1975. "Some New Bond Indexes," The Journal of Business, University of Chicago Press, vol. 48(4), pages 506-525, October.
    3. Sargent, Thomas J., 1979. "A note on maximum likelihood estimation of the rational expectations model of the term structure," Journal of Monetary Economics, Elsevier, vol. 5(1), pages 133-143, January.
    4. LeRoy, Stephen F & Porter, Richard D, 1981. "The Present-Value Relation: Tests Based on Implied Variance Bounds," Econometrica, Econometric Society, vol. 49(3), pages 555-574, May.
    5. Richard, Scott F., 1978. "An arbitrage model of the term structure of interest rates," Journal of Financial Economics, Elsevier, vol. 6(1), pages 33-57, March.
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