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The Term Structure of Interest Rates: Evidence and Theory

  • Melino, Angelo

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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Article provided by Wiley Blackwell in its journal Journal of Economic Surveys.

Volume (Year): 2 (1988)
Issue (Month): 4 ()
Pages: 335-66

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Handle: RePEc:bla:jecsur:v:2:y:1988:i:4:p:335-66
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  1. 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.
  2. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-36, May-June.
  3. J. M. Culbertson, 1957. "The Term Structure of Interest Rates," The Quarterly Journal of Economics, Oxford University Press, vol. 71(4), pages 485-517.
  4. 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, vol. 75, pages 546.
  5. 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, vol. 91(2), pages 249-65, April.
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  7. Flavin, Marjorie A, 1983. "Excess Volatility in the Financial Markets: A Reassessment of the Empirical Evidence," Journal of Political Economy, University of Chicago Press, vol. 91(6), pages 929-56, December.
  8. McCallum, John S, 1975. "The Expected Holding Period Return, Uncertainty and the Term Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 30(2), pages 307-23, May.
  9. Chamberlain, Gary & Rothschild, Michael, 1982. "Arbitrage, Factor Structure, and Mean-Variance Analysis on Large Asset Markets," Scholarly Articles 3230355, Harvard University Department of Economics.
  10. Sanford J. Grossman & Angelo Melino & Robert J. Shiller, 1985. "Estimating the Continuous Time Consumption Based Asset Pricing Model," NBER Working Papers 1643, National Bureau of Economic Research, Inc.
  11. 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.
  12. Richard Startz, . "Do Forecast Errors or Term Premia Really Make the Difference Between Long and Short Rates?," Rodney L. White Center for Financial Research Working Papers 08-81, Wharton School Rodney L. White Center for Financial Research.
  13. 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, vol. 19(03), pages 253-269, September.
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  15. 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, vol. 36(4), pages 769-99, September.
  16. V. Vance Roley, 1982. "The Effect of Federal Debt-Management Policy on Corporate Bond and Equity Yields," The Quarterly Journal of Economics, Oxford University Press, vol. 97(4), pages 645-668.
  17. J. E. Stiglitz, 1970. "A Consumption-Oriented Theory of the Demand for Financial Assets and the Term Structure of Interest Rates," Review of Economic Studies, Oxford University Press, vol. 37(3), pages 321-351.
  18. McCulloch, J Huston, 1971. "Measuring the Term Structure of Interest Rates," The Journal of Business, University of Chicago Press, vol. 44(1), pages 19-31, January.
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  21. 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, vol. 75, pages 569.
  22. 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, vol. 31(4), pages 1035-65, September.
  23. Chen, Nai-fu, 1983. " Some Empirical Tests of the Theory of Arbitrage Pricing," Journal of Finance, American Finance Association, vol. 38(5), pages 1393-1414, December.
  24. Friedman, Benjamin M, 1979. "Interest Rate Expectations versus Forward Rates: Evidence from an Expectations Survey," Journal of Finance, American Finance Association, vol. 34(4), pages 965-73, September.
  25. 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, vol. 4(2), pages 129-176, March.
  26. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
  27. F. A. Lutz, 1940. "The Structure of Interest Rates," The Quarterly Journal of Economics, Oxford University Press, vol. 55(1), pages 36-63.
  28. Modigliani, Franco & Shiller, Robert J, 1973. "Inflation, Rational Expectations and the Term Structure of Interest Rates," Economica, London School of Economics and Political Science, vol. 40(157), pages 12-43, February.
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