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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 using monthly Eurodollar deposit rates for maturities 1, 3 and 6 months covering the period 1983: 1996:6.Whereas classical regression-based tests indicate rejection, tests based on a new model allowing for potential but unrealized regime shifts provide support for the expectations hypothesis.The peso problem is modelled by means of a threshold autoregression.The estimation results suggest that potential regime shift had an effect on expectations concerning the longer-term interest rate only for a short while in the early phase of the sample ??ri?d, when interest rates were at their highest. Key words: peso problem, TAR models, term structure of interest rates
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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(Supplemen), pages 54-67, September.
  • Handle: RePEc:bla:manchs:v:71:y:2003:i:supplement:p:54-67
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    Cited by:

    1. Koukouritakis, Minoas, 2013. "Expectations hypothesis in the context of debt crisis: Evidence from five major EU countries," Research in Economics, Elsevier, vol. 67(3), pages 243-258.
    2. Balázs Romhányi, 2005. "A learning hypothesis of the term structure of interest rates," Macroeconomics 0503001, University Library of Munich, Germany.
    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. 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.
    5. 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.
    6. Nagayasu, Jun, 2002. "On the term structure of interest rates and inflation in Japan," Journal of Economics and Business, Elsevier, vol. 54(5), pages 505-523.
    7. Erdemlioglu, Deniz, 2009. "Macro Factors in UK Excess Bond Returns: Principal Components and Factor-Model Approach," MPRA Paper 28895, University Library of Munich, Germany.

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