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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: 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: 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: 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: Ludwig B. Chincarini Publisher: ISBN: Category : Languages : en Pages : 19
Book Description
One of the most popular theories of the term structure of interest rates is the pure expectations theory. In its purest form it postulates that long term interest rates are a reflection of the market's perception of future short term rates. Almost all of the tests of the pure form of this theory with financial markets of various countries have resulted in a rejection of the theory. A standard approach of most of the literature is to linearize the equations associated with the theory and then estimate a linear regression to determine if the spread is indeed a predictor of future short rates. While this approximation is valid for testing the expectations hypothesis when the spread is between long and short duration instruments, researchers should be careful applying this technique to money market spreads. In particular, this approximation will not be valid for very flat term structures, which is usually the case for bills with less than twelve months to maturity. This paper uses simulations to show how erroneous conclusions can be drawn by using this approximation in the money market and re-examines the pure expectations theory for the money markets of various countries using the DOLS approach to estimating series that are cointegrated. The conclusions are different from other studies on this subject and are particularily supportive of the expectation's hypothesis. In fact, while the theory is sometimes rejected (accepted) when using approximations, it is accepted (rejected) using the exact formulas.
Author: Meredith J. Beechey
Author: Meredith J. Beechey
Author: 
Author: Robert Dittmar
Author: Geert Bekaert
Author: Frank J. Bonello
Author: Kenneth Froot
Author: M. Luanne
Author: Markku Lanne
Author: Markku Lanne
Author: Ludwig B. Chincarini