IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

The Expectations Hypothesis of Term Structure of Interest Rates Revisited

Listed author(s):
  • Fabrizio Casalin
Registered author(s):

    This paper investigates the validity of the Expectations Hypothesis of the Term Structure (EHTS) employing standard forward-spot regressions which accommodate for the presence of time-varying term premia. The novelty of this paper is that the analysis is conducted by taking advan- tage of the following two properties of the Kalman Filter: first, it makes possible to model time-varying term premia as unobservables, and second it delivers recursive estimations of forward-spot regressions as more data become available. In fact, previous studies have modelled term premia by means of macroeconomic variables. To the extent that term premia are influenced by political and social climates which are difficult to ob- serve, it might be preferable to model them as unobservables, rather than by means of observed variables. Moreover, especially when tested over long periods of data, the EHTS might hold for certain periods while it might not for others. These periodic departures from and reversions to the EHTS cannot be detected by constant parameters models, which there- fore can provide only broad brush evidence. This paper shows that the recursive nature of the Kalman filter can be employed to construct a test for the EHTS which gives more refined evidence. The analysis is carried out focusing on the short-end of the US term structure spectrum.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    File Function: First version, 2007
    Download Restriction: no

    Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 128.

    in new window

    Length: 45 pages
    Date of creation: Nov 2007
    Date of revision: Nov 2007
    Handle: RePEc:mib:wpaper:128
    Contact details of provider: Postal:
    Piazza Ateneo Nuovo, 1 Milano 20126

    Phone: +39 02 6448 3089
    Fax: +39 02 6448 3085
    Web page:

    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:mib:wpaper:128. 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: (Matteo Pelagatti)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.