The Expectation Theory: Tests on French, German, and American Euro-Rates
Eric Jondeau () and
Roland Ricart ()
Working papers from Banque de France
This paper deals with tests of the expectations hypothesis of the term structure on French, German, UK and US short-term interest rates. Three tests are examined: the first is based on forward rates and the other two are based on the interest rates spread. First, we show that the puzzle highlighted by Campbell and Shiller (1991) for US data does not hold in the cases of French and UK short-term rates. Second, we propose tests for the expectations hypothesis based on error-correction specifications. These tests are shown to be much more favorable for the theory and the initial puzzle disappears.
Keywords: Term structure of interest rates; Expectations hypothesis; Error-correction model. (search for similar items in EconPapers)
JEL-codes: E43 E40 (search for similar items in EconPapers)
Pages: 26 pages
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:35
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