"Peso Problem" Explanations for Term Structure Anomalies

Geert Bekaert, Robert Hodrick () and David Marshall

No 6147, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine the empirical evidence on the expectations hypothesis of the term structure of interest rates in the United States, the United Kingdom, and Germany using the Campbell-Shiller (1991) regressions and a vector-autoregressive" methodology. We argue that anomalies in the U.S. term structure, documented by Campbell and Shiller (1991), may be due to a generalized peso problem in which a high-interest rate regime occurred less frequently in the sample of U.S. data than was rationally anticipated. We formalize this idea as a regime-switching model of short-term interest rates estimated with data" from seven countries. Technically, this model extends recent research on regime-switching models with state-dependent transitions to a cross-sectional setting. Use of the small sample distributions generated by the regime-switching model for inference considerably weakens the evidence against the expectations hypothesis, but it remains somewhat implausible that our data-generating process produced the U.S. data. However, a model that combines moderate time-variation in term premiums with peso-problem effects is largely consistent with term structure data from the U.S., U.K., and Germany.

JEL-codes: F3 G1 (search for similar items in EconPapers)
Date: 1997-08
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

Published as Bekaert, Geert, Robert J. Hodrick and David A. Marshall. "Peso Problem Explanations For Term Structure Anomalies," Journal of Monetary Economics, 2001, v48(2,Oct), 241-270.

Downloads: (external link)
http://www.nber.org/papers/w6147.pdf (application/pdf)

Related works:
Journal Article: Peso problem explanations for term structure anomalies (2001)
Working Paper: \"Peso problem\" explanations for term structure anomalies (1997)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:6147

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w6147

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().