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Testing the Expectations Hypothesis of the Term Structure of Interest Rates in the Presence of a Potential Regime Shift

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  • Markku Lanne

Abstract

The expectations hypothesis of the term structure of interest rates is tested with monthly Eurodollar deposit rates for maturities of 1, 3 and 6 months covering the period 1983:1–1999:6. Classical regression based tests indicate rejection, while tests in a new model allowing for potential regime shifts that have not occurred in the sample period lend support to the expectations hypothesis. The results imply that the potential regime shift affected the expectations concerning the longer‐term interest rate only in a short period at the beginning of the sample when the interest rates were highest.

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  • Markku Lanne, 2003. "Testing the Expectations Hypothesis of the Term Structure of Interest Rates in the Presence of a Potential Regime Shift," Manchester School, University of Manchester, vol. 71(s1), pages 54-67, September.
    • Handle: RePEc:bla:manchs:v:71:y:2003:i:s1:p:54-67
    DOI: 10.1111/1467-9957.71.s.4
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    3. Osmani Teixeira De Carvalho Guillen & Benjamin M. Tabak, 2009. "Characterising the Brazilian term structure of interest rates," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 2(2), pages 103-114.
    4. Balázs Romhányi, 2005. "A learning hypothesis of the term structure of interest rates," Macroeconomics 0503001, University Library of Munich, Germany.
    5. Date, Paresh & Wang, Chieh, 2009. "Linear Gaussian affine term structure models with unobservable factors: Calibration and yield forecasting," European Journal of Operational Research, Elsevier, vol. 195(1), pages 156-166, May.
    6. Minoas Koukouritakis, 2010. "Structural breaks and the expectations hypothesis of the term structure: evidence from Central European countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(4), pages 757-774, January.
    7. Vides, José Carlos & Golpe, Antonio A. & Iglesias, Jesús, 2020. "The EHTS and the persistence in the spread reconsidered. A fractional cointegration approach," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 124-137.

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