The Expectations Hypothesis of the Term Structure in the Philippines: An Empirical Note (2001-2017)

Marco Tronzano ()

Asian Economic and Financial Review, 2018, vol. 8, issue 5, 704-716

Abstract: This paper provides a first assessment about the Expectations Hypothesis of the Term Structure (EHTS) in the Philippines. In line with the EHTS, there is strong support for cointegration between interest rates at different maturities, while no significant risk premium components are detected. However, the “symmetry” restriction, assuming equi-proportional yields movements, is strongly rejected. Finally, there is strong evidence of unidirectional causality from short to long-term interest rates. The main policy implications are that: (a) monetary policy should be mainly focused on the management of longer term maturities; (b) monetary policy should rely on interest rates smoothing, in order to prevent potentially destabilizing effects.

Keywords: Term structure of interest rates; Expectations hypothesis; Risk premium; Philippines; Cointegration; Monetary Policy. (search for similar items in EconPapers)
Date: 2018
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