Expectations Hypothesis Tests in the Presence of Model Uncertainty
Erdenebat Bataa (),
Dong Heon Kim () and
Denise Osborn ()
No 703, Discussion Paper Series from Institute of Economic Research, Korea University
We extend vector autoregressive (VAR) model based expectations hypothesis tests of the term structure by relaxing some specification assumptions in order to reflect model uncertainty. Firstly, the wild bootstrap is used to allow for conditional heteroskedasticity of unknown form in the VAR residuals. Secondly, the model selection procedure is endogenized in the bootstrap replications and supplemented with a robust multivariate autocorrelation test. Finally, a stationarity correction is introduced to prevent the bias corrected VAR coefficients from becoming explosive. When the new methodology is applied to extensive US term structure data it emerges that the model uncertainty goes a long way in explaining the empirical rejections of the theory.
Keywords: expectations hypothesis; term structure; wild bootstrap; conditional heteroskedasticity (search for similar items in EconPapers)
JEL-codes: G10 E43 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:iek:wpaper:0703
Access Statistics for this paper
More papers in Discussion Paper Series from Institute of Economic Research, Korea University Contact information at EDIRC.
Bibliographic data for series maintained by Kim, Jisoo ().