Testing the Expectations Hypothesis with Survey Forecasts: The Impacts of Consumer Sentiment and the Zero Lower Bound in an I(2) CVAR

Josh Stillwagon ()
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Josh Stillwagon: Department of Economics, Trinity College

No 1401, Working Papers from Trinity College, Department of Economics

Abstract: Monthly interest rate forecasts from nearly 50 major financial institutions are used to examine the expectations hypothesis at the short end of the term structure for the Canadian T-bill market and Libor markets in the US, UK, and Switzerland. Using CVARs, the term premium is found to move inversely with consumer sentiment in all four samples at the 1% level. Extension to the polynomial CVAR also suggests that a fall in the interest rate raises the premium, at least temporarily. This is interpreted as arising from the decreasing upside potential for bond price movements related to the zero lower bound.

Keywords: Expectations hypothesis; survey data; time-varying risk premium; consumer sentiment; zero lower bound; polynomial cointegration (search for similar items in EconPapers)
JEL-codes: C22 E43 G12 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2014-01
New Economics Papers: this item is included in nep-mac and nep-sog
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http://www3.trincoll.edu/repec/WorkingPapers2014/WP14-01.pdf First version, 2014 (application/pdf)

Related works:
Journal Article: Testing the expectations hypothesis with survey forecasts: The impacts of consumer sentiment and the zero lower bound in an I(2) CVAR (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:tri:wpaper:1401

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