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Do Long-Term Interest Rates Overreact to Short-Term Interest Rates?

Listed author(s):
  • N. Gregory Mankiw
  • Lawrence H. Summers

This paper examines the hypothesis that financial markets are myopic by studying the term structure of interest rates. White rejecting decisively the traditional expectations hypothesis regarding the term structure, our statistical results also lead us to conclude that long term interest rates do not overreact to either the level or the change in short termrates. This finding suggests that participants in bond markets are not myopic or overly sensitive to recent events. Our statistical results also suggest that most variations in the yield curve reflect changes in liquidity premia rather than expected changes in interest rates.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1345.

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Date of creation: May 1984
Publication status: published as Mankiw, N. Gregory and Lawrence H. Summers. "Do Long-Term Interest Rates Overreact to Short-Term Interest Rates?" Brookings Papers on Economic Activity, No. 1, (1984), pp. 223-242.
Handle: RePEc:nbr:nberwo:1345
Note: ME
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