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The Expectations Hypothesis of the Term Structure: Some Empirical Evidence for Portugal

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  • Silva Lopes, Artur C.
  • Monteiro, Olga Susana

Abstract

The purpose of this paper is to test the (rational) expectations hypothesis of the term structure of interest rates using Portuguese data for the interbank money market. The results obtained support only a very weak, long-run or "asymptotic" version of the hypothesis, and broadly agree with previous evidence for other countries. The empirical evidence supports the cointegration of Portuguese rates and the "puzzle" well known in the literature: although its forecasts of future short-term rates are in the correct direction, the spread between longer and shorter rates fails to forecast future longer rates. In the single equation framework, the implications of the hypothesis in terms of the predictive ability of the spread are also clearly rejected, even for the more stable period which emerged in the middle nineties.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6310.

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Date of creation: 2007
Date of revision: 14 Dec 2007
Handle: RePEc:pra:mprapa:6310

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Keywords: term structure of interest rates; expectations hypothesis; hypothesis testing; cointegration; Portugal;

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Cited by:
  1. Simeon Coleman and Kavita Sirichand, 2011. "Fractional integration and the volatility of UK interest rates," Working Papers, Nottingham Trent University, Nottingham Business School, Economics Division 2011/02, Nottingham Trent University, Nottingham Business School, Economics Division.

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