A defence of the expectations theory as a model of us long-term interest rates
This paper re-examines the empirical content of the expectations theory of the term structure by employing the Campbell-Shiller (1987) methodology to study the behaviour of 10-year/three-month US government yield spreads. The methodology is implemented in two ways. First, theoretical spreads satisfying the expectations theory are constructed from in-sample forecasts of future changes in short rates generated from a small-scale VAR. Second, theoretical spreads are computed from out-of-sample forecasts of changes in short rates with the parameters of each VAR equation updated with a Bayesian procedure. When the procedure is restricted to give less weight to new data than would be the case with OLS estimation over an expanding sample, theoretical spreads computed from out-of-sample forecasts track actual spreads closely in pre-1979 data. This is also the case as from the start of 1984 if data from the 1979Q4-1982Q4 period of non-borrowed reserve targeting are given zero weight when estimating the parameters of the VAR.
|Date of creation:||Jan 2000|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (41) 61 - 280 80 80
Fax: (41) 61 - 280 91 00
Web page: http://www.bis.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Campbell, John Y & Shiller, Robert J, 1987.
"Cointegration and Tests of Present Value Models,"
Journal of Political Economy,
University of Chicago Press, vol. 95(5), pages 1062-88, October.
- John Y. Campbell & Robert J. Shiller, 1986. "Cointegration and Tests of Present Value Models," NBER Working Papers 1885, National Bureau of Economic Research, Inc.
- John Y. Campbell & Robert J. Shiller, 1986. "Cointegration and Tests of Present Value Models," Cowles Foundation Discussion Papers 785, Cowles Foundation for Research in Economics, Yale University.
- Campbell, John & Shiller, Robert, 1987. "Cointegration and Tests of Present Value Models," Scholarly Articles 3122490, Harvard University Department of Economics.
- Shiller, Robert & Campbell, John, 1984.
"A Simple Account of the Behavior of Long-Term Interest Rates,"
3208216, Harvard University Department of Economics.
- Campbell, John Y & Shiller, Robert J, 1984. "A Simple Account of the Behavior of Long-Term Interest Rates," American Economic Review, American Economic Association, vol. 74(2), pages 44-48, May.
- John Y. Campbell & Robert J. Shiller, 1983. "A Simple Account of the Behavior of Long-Term Interest Rates," NBER Working Papers 1203, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:bis:biswps:85. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Beslmeisl)
If references are entirely missing, you can add them using this form.