Testing the expectations hypothesis with survey forecasts: The impacts of consumer sentiment and the zero lower bound in an I(2) CVAR

Josh Stillwagon ()

Journal of International Financial Markets, Institutions and Money, 2015, vol. 35, issue C, 85-101

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; Cointegrated VAR; Zero lower bound (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (7)

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Working Paper: Testing the Expectations Hypothesis with Survey Forecasts: The Impacts of Consumer Sentiment and the Zero Lower Bound in an I(2) CVAR (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:35:y:2015:i:c:p:85-101

DOI: 10.1016/j.intfin.2015.01.004

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