Testing the expectations theory in a market of short-term financial assets

Maria Prats and Arielle Beyaert ()

Applied Financial Economics, 1998, vol. 8, issue 2, 101-109

Abstract: The aim of this paper is to test the Rational Expectations Theory for the term structure of interest rates in a short-term asset market. Campbell and Shiller (1987) apply cointegration theory to present value models to test that theory for the case of very long run financial assets. In this paper, we reformulate their methodology in order to adapt it to the case of short-run assets. We then apply it to the Spanish interbank market over the period 1986-1992, obtaining some evidence in favour of the theory. The results ratify the institutional measures, that were taken in Spain in the second half of the 1980s, aimed at improving the channels of monetary transmission.

Date: 1998
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DOI: 10.1080/096031098333078

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