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The expectations hypothesis with non-negative rates

Author

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  • Philip S. Griffin

    () (Department of Mathematics, Syracuse University, Syracuse, NY 13244-1150, USA Manuscript)

Abstract

We demonstrate the existence of models of the term structure of interest rates in which various forms of the expectations hypothesis hold. The new feature of these examples, which distinguishes them from those constructed by McCulloch, Riedel, and Fisher and Gilles, is that the spot rate is always non-negative. The original example of McCulloch, and the later examples of Riedel, and Fisher and Gilles, were constructed to refute the claim by Cox, Ingersoll and Ross that only the local expectations hypothesis is compatible with equilibrium in a stochastic environment.

Suggested Citation

  • Philip S. Griffin, 2002. "The expectations hypothesis with non-negative rates," Finance and Stochastics, Springer, vol. 6(2), pages 265-271.
  • Handle: RePEc:spr:finsto:v:6:y:2002:i:2:p:265-271
    Note: received: May 2000; final version received: May 2001
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    More about this item

    Keywords

    Expectations hypothesis; term structure; arbitrage;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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