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The Expectations Hypothesis of the Term Structure: The Case of Ireland

  • Bredin, Don

    (Central Bank and Financial Services Authority of Ireland)

  • Cuthbertson, Keith

    (Imperial College, London)

Using Irish money market rates (spot rates) with a term to maturity of 1, 3, and 6 months and monthly data, 1984-1997, we provide a number of tests of the expectations hypothesis (EH) of the term structure. The paper draws on co-integration techniques and the methodological approach of Campbell and Shiller (1987, 1991). On balance our results lend support to the EH and are broadly consistent with the recent findings for the UK, but are in sharp contrast to those for the US. It is encouraging that our results are consistent with those of recent studies at the short end of the maturity spectrum for the UK, (e.g. Cuthbertson, 1996).

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Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 1/RT/00.

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Length: 23 pages
Date of creation: May 2000
Date of revision:
Handle: RePEc:cbi:wpaper:1/rt/00
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  1. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  2. Rudebusch, Glenn D., 1995. "Federal Reserve interest rate targeting, rational expectations, and the term structure," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 245-274, April.
  3. Geert Bekaert & Robert J. Hodrick, 2000. "Expectations Hypotheses Tests," NBER Working Papers 7609, National Bureau of Economic Research, Inc.
  4. Bekaert, Geert & Hodrick, Robert J. & Marshall, David A., 1997. "On biases in tests of the expectations hypothesis of the term structure of interest rates," Journal of Financial Economics, Elsevier, vol. 44(3), pages 309-348, June.
  5. Engsted, Tom, 1996. "The predictive power of the money market term structure," International Journal of Forecasting, Elsevier, vol. 12(2), pages 289-295, June.
  6. Kugler, Peter, 1988. "An Empirical Note on the Term Structure and Interest Rate Stabilization Policies," The Quarterly Journal of Economics, MIT Press, vol. 103(4), pages 789-92, November.
  7. John Y. Campbell & Robert J. Shiller, 1986. "Cointegration and Tests of Present Value Models," NBER Working Papers 1885, National Bureau of Economic Research, Inc.
  8. Melino, Angelo, 1988. " The Term Structure of Interest Rates: Evidence and Theory," Journal of Economic Surveys, Wiley Blackwell, vol. 2(4), pages 335-66.
  9. Mark P. Taylor, 1991. "Modelling the Yield Curve," IMF Working Papers 91/134, International Monetary Fund.
  10. Martin D. Evans & Karen K. Lewis, 1992. "Do Stationary Risk Premia Explain It All? Evidence from the Term Structure," Working Papers 92-11, New York University, Leonard N. Stern School of Business, Department of Economics.
  11. John Y. Campbell & Robert J. Shiller, 1989. "Yield Spreads and Interest Rate Movements: A Bird's Eye View," NBER Working Papers 3153, National Bureau of Economic Research, Inc.
  12. Hurn, A Stan & Moody, Terry & Muscatelli, V Anton, 1995. "The Term Structure of Interest Rates in the London Interbank Market," Oxford Economic Papers, Oxford University Press, vol. 47(3), pages 419-36, July.
  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.
  14. 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.
  15. N. Gregory Mankiw & Jeffrey A. Miron, 1985. "The Changing Behavior of the Term Structure of Interest Rates," NBER Working Papers 1669, National Bureau of Economic Research, Inc.
  16. Shea, Gary S, 1992. "Benchmarking the Expectations Hypothesis of the Interest-Rate Term Structure: An Analysis of Cointegration Vectors," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 347-66, July.
  17. McCulloch, J Huston, 1975. "The Tax-Adjusted Yield Curve," Journal of Finance, American Finance Association, vol. 30(3), pages 811-30, June.
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