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The Term Structure of Interest Rates: Evidence and Theory

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  • Angelo Melino

Abstract

The term structure of interest rates is an old topic. Over the years, both the hypotheses debated and the research techniques used have changed considerably. Two fairly recent developments which distinguish current research are the widespread adoption of rational expectations and the integration of the term structure with the general theory of asset pricing. This survey reviews previous work from this perspective. The main objective is to catalog available evidence about term premia and to interpret this evidence in light of alternative models of term premia determination.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1828.

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Date of creation: Feb 1986
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Publication status: published as Journal of Economic Surveys, vol 2, no. 4, pp 335-366. (1988)
Handle: RePEc:nbr:nberwo:1828

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  1. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, American Finance Association, vol. 7(1), pages 77-91, 03.
  2. Startz, Richard, 1982. "Do forecast errors or term premia really make the difference between long and short rates?," Journal of Financial Economics, Elsevier, Elsevier, vol. 10(3), pages 323-329, November.
  3. Grossman, S J & Melino, Angelo & Shiller, Robert J, 1987. "Estimating the Continuous-Time Consumption-Based Asset-Pricing Model," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 5(3), pages 315-27, July.
  4. Modigliani, Franco & Shiller, Robert J, 1973. "Inflation, Rational Expectations and the Term Structure of Interest Rates," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 40(157), pages 12-43, February.
  5. Frederic S. Mishkin, 1978. "Efficient-Markets Theory: Implications for Monetary Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 9(3), pages 707-752.
  6. Robert J. Shiller & John Y. Campbell & Kermit L. Schoenholtz, 1983. "Forward Rates and Future Policy: Interpreting the Term Structure of Interest Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(1), pages 173-224.
  7. Campbell, John Y & Shiller, Robert J, 1984. "A Simple Account of the Behavior of Long-Term Interest Rates," American Economic Review, American Economic Association, American Economic Association, vol. 74(2), pages 44-48, May.
  8. Michael Rothschild, 1985. "Asset Pricing Theories," NBER Technical Working Papers 0044, National Bureau of Economic Research, Inc.
  9. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, American Finance Association, vol. 19(3), pages 425-442, 09.
  10. Dobson, Steven W & Sutch, Richard C & Vanderford, David E, 1976. "An Evaluation of Alternative Empirical Models of the Term Structure of Interest Rates," Journal of Finance, American Finance Association, American Finance Association, vol. 31(4), pages 1035-65, September.
  11. Gary Chamberlain & Michael Rothschild, 1982. "Arbitrage, Factor Structure, and Mean-Variance Analysis on Large Asset Markets," NBER Working Papers 0996, National Bureau of Economic Research, Inc.
  12. McCulloch, J Huston, 1971. "Measuring the Term Structure of Interest Rates," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 44(1), pages 19-31, January.
  13. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 81(3), pages 607-36, May-June.
  14. Franco Modigliani & Richard Sutch, 1967. "Debt Management and the Term Structure of Interest Rates: An Empirical Analysis of Recent Experience," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 75, pages 569.
  15. Roll, Richard, 1977. "A critique of the asset pricing theory's tests Part I: On past and potential testability of the theory," Journal of Financial Economics, Elsevier, Elsevier, vol. 4(2), pages 129-176, March.
  16. James E. Pesando, 1979. "On Forecasting Interest Rates: An Efficient Markets Perspective," NBER Working Papers 0410, National Bureau of Economic Research, Inc.
  17. Stiglitz, Joseph E, 1970. "A Consumption-Oriented Theory of the Demand for Financial Assets and the Term Structure of Interest Rates," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 37(3), pages 321-51, July.
  18. Chen, Nai-fu, 1983. " Some Empirical Tests of the Theory of Arbitrage Pricing," Journal of Finance, American Finance Association, American Finance Association, vol. 38(5), pages 1393-1414, December.
  19. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1981. "A Re-examination of Traditional Hypotheses about the Term Structure of Interest Rates," Journal of Finance, American Finance Association, American Finance Association, vol. 36(4), pages 769-99, September.
  20. Flavin, Marjorie A, 1983. "Excess Volatility in the Financial Markets: A Reassessment of the Empirical Evidence," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(6), pages 929-56, December.
  21. Hansen, Lars Peter & Singleton, Kenneth J, 1983. "Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(2), pages 249-65, April.
  22. Friedman, Benjamin M, 1979. "Interest Rate Expectations versus Forward Rates: Evidence from an Expectations Survey," Journal of Finance, American Finance Association, American Finance Association, vol. 34(4), pages 965-73, September.
  23. Shea, Gary S., 1984. "Pitfalls in Smoothing Interest Rate Term Structure Data: Equilibrium Models and Spline Approximations," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 19(03), pages 253-269, September.
  24. L. G. Telser, 1967. "A Critique of Some Recent Empirical Research on the Explanation of the Term Structure of Interest Rates," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 75, pages 546.
  25. McCallum, John S, 1975. "The Expected Holding Period Return, Uncertainty and the Term Structure of Interest Rates," Journal of Finance, American Finance Association, American Finance Association, vol. 30(2), pages 307-23, May.
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