Testing the Expectations Hypothesis when Interest Rates are Near Integrated PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Testing the Expectations Hypothesis when Interest Rates are Near Integrated PDF full book. Access full book title Testing the Expectations Hypothesis when Interest Rates are Near Integrated by Meredith J. Beechey. Download full books in PDF and EPUB format.
Author: Meredith J. Beechey Publisher: ISBN: Category : Data mining Languages : en Pages : 42
Book Description
"Nominal interest rates are unlikely to be generated by unit-root processes. Using data on short and long interest rates from eight developed and six emerging economies, we test the expectations hypothesis using cointegration methods under the assumption that interest rates are near integrated. If the null hypothesis of no cointegration is rejected, we then test whether the estimated cointegrating vector is consistent with that suggested by the expectations hypothesis. The results show support for cointegration in ten of the fourteen countries we consider, and the cointegrating vector is similar across countries. However, the parameters differ from those suggested by theory. We relate our findings to existing literature on the failure of the expectations hypothesis and to the role of term premia"--Federal Reserve Board web site.
Author: Meredith J. Beechey Publisher: ISBN: Category : Data mining Languages : en Pages : 42
Book Description
"Nominal interest rates are unlikely to be generated by unit-root processes. Using data on short and long interest rates from eight developed and six emerging economies, we test the expectations hypothesis using cointegration methods under the assumption that interest rates are near integrated. If the null hypothesis of no cointegration is rejected, we then test whether the estimated cointegrating vector is consistent with that suggested by the expectations hypothesis. The results show support for cointegration in ten of the fourteen countries we consider, and the cointegrating vector is similar across countries. However, the parameters differ from those suggested by theory. We relate our findings to existing literature on the failure of the expectations hypothesis and to the role of term premia"--Federal Reserve Board web site.
Author: Kenneth Froot Publisher: ISBN: Category : Languages : en Pages : 46
Book Description
Survey data on interest rate expectations are used to separate the forward interest rate into an expected future rate and a term premium. These components are used to test separately two competing alternative hypotheses in tests of the term structure: that the expectations hypothesis does not hold, and that expected future long rates over- or underreact. to changes in short rates. While the spread consistently fails to predict future interest rate changes, we find that the nature of this failure is different, for short versus long maturities. For short maturities, expected future rates are rational forecasts. The poor predictions of the spread can therefore be attributed to variation in term premia. For longer-term bonds, however, we are unable to reject the expectations theory, in that a steeper yield curve reflects a one-for-one increase in expected future long rates. Here the perverse predictions of the spread reflect investors' failure to raise sufficiently their expectations of future long rates when the short rate rises. We confirm earlier findings that bond rates underreact to short rate changes, but now this result cannot be attributed to the term premium.
Author: Publisher: ISBN: Category : Bonds Languages : en Pages :
Book Description
"This paper tests the expectations hypothesis (EH) with the data used in Campbell and Shiller's (1991) seminal work on the EH using a Lagrange multiplier test developed recently by Bekaert and Hodrick (2001). This test is applied under the assumption that interest rates are integrated of order one, I(1), as in Campbell and Shiller (1987), and under the assumption that interest rates are stationary. We also extend the literature beyond the bivariate comparisons of long-term and short-term rates which dominates the EH testing literature. In addition, we examine the linkage between the term structure and macrcoeconomic variables. Consistent with the findings of Campbell and Shiller (1991), the EH is rejected at the short end of the maturity spectrum but not at the longer end. The EH is rejected at the longer end of the term structure when more than two rates or the relationship between the term structure and the macroeconomy are considered. Moreover, we find that evaluating the EH using the ratio of the variance of the forecasted long-term rate (or rate spread) under the EH to the observed variance generates misleading information about the merit of the EH"--Federal Reserve Bank of St. Louis web site.
Author: Kenneth A. Froot Publisher: ISBN: Category : Languages : en Pages :
Book Description
Survey data on interest rate expectations are used to separate the forward interest rate into an expected future rate and a term premium. These components are used to test separately two competing alternative hypotheses in tests of the term structure: that the expectations hypothesis does not hold, and that expected future long rates over- or underreact. to changes in short rates. While the spread consistently fails to predict future interest rate changes, we find that the nature of this failure is different, for short versus long maturities. For short maturities, expected future rates are rational forecasts. The poor predictions of the spread can therefore be attributed to variation in term premia. For longer-term bonds, however, we are unable to reject the expectations theory, in that a steeper yield curve reflects a one-for-one increase in expected future long rates. Here the perverse predictions of the spread reflect investors' failure to raise sufficiently their expectations of future long rates when the short rate rises. We confirm earlier findings that bond rates underreact to short rate changes, but now this result cannot be attributed to the term premium
Author: Robert Dittmar Publisher: ISBN: Category : Languages : en Pages : 34
Book Description
This paper tests the expectations hypothesis (EH) with the data used in Campbell and Shiller's (1991) seminal work on the EH using a Lagrange multiplier test developed recently by Bekaert and Hodrick (2001). This test is applied under the assumption that interest rates are integrated of order one, I(1), as in Campbell and Shiller (1987), and under the assumption that interest rates are stationary. We also extend the literature beyond the bivariate comparisons of long-term and short-term rates which dominates the EH testing literature. Consistent with the findings of Campbell and Shiller (1991), the EH is rejected at the short end of the maturity spectrum but not at the longer end. However, the EH is rejected at the longer end of the term structure when more than two rates are considered. We also find that the frequently used practice of calculating the ratio of the variance of the forecasted long-term rate (or rate spread) under the EH to the observed variance is not useful for assessing the validity of the EH.
Author: Johura Begum Publisher: ISBN: Category : Languages : en Pages :
Book Description
The Yield curve is very prominent in the economics and finance literature to analyze the behavior of households and investors towards bonds markets. In this paper we explore and test the Expectations Hypothesis (EH) of the term structure for a number of international bond markets. We use data at the short and long end maturities for the Treasury bill rate and the Government of Canada bond rate. The sample includes monthly yields for maturities ranging from 1, 3, 5-month treasury bills and 1, 5, 10 and more years for Government of Canada bonds, USA bonds, UK bonds and France bonds. We use the Engle-Granger cointegration test and OLS to estimate the spread between short and long term interest rates, including tests for serial correlation in residuals, and to test the validity of the EH. The EH is rejected in all cases.
Author: Frank J. Bonello Publisher: ISBN: Category : Business & Economics Languages : en Pages : 128
Book Description
Term structure, expectations hypothesis, and decision making; Expectations mechanisms; Implications of the expectations mechanisms; Empirical analysis; Conclusion & implications.
Author: Meredith J. Beechey
Author: Meredith J. Beechey
Author: Frank J. Bonello
Author: Kenneth Froot
Author: Geert Bekaert
Author: 
Author: Kenneth A. Froot
Author: Robert Dittmar
Author: Johura Begum
Author: Frank J. Bonello
Author: M. Luanne