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Short and long run tests of the expectations hypothesis: the Portuguese case

  • Silva Lopes, Artur C. B. da
  • Monteiro, Olga Susana

The purpose of this paper is to test both short- and long-run implications of the (rational) expectations hypothesis of the term structure of interest rates using Portuguese data for the interbank money market. The results support only a very weak, long-run or "asymptotic" version of the hypothesis, and broadly agree with previous (but separate) evidence for other countries. Empirical evidence supports the cointegration of Portuguese rates and the "puzzle" well known in the literature: although its forecasts of future short-term rates are in the correct direction, the spread between longer and shorter rates fails to forecast future longer rates. Further short-run implications of the hypothesis in terms of the predictive ability of the spread are also clearly rejected, even for the more stable period which emerged in the middle nineties.

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File URL: https://mpra.ub.uni-muenchen.de/12001/1/MPRA_paper_12001.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 12001.

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Date of creation: 18 Sep 2008
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Handle: RePEc:pra:mprapa:12001
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  25. John Y. Campbell & Robert J. Shiller, 1991. "Yield Spreads and Interest Rate Movements: A Bird's Eye View," Review of Economic Studies, Oxford University Press, vol. 58(3), pages 495-514.
  26. Camarero, Mariam & Tamarit, Cecilio, 2002. "Instability tests in cointegration relationships. An application to the term structure of interest rates," Economic Modelling, Elsevier, vol. 19(5), pages 783-799, November.
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