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Tests of the Expectations Hypothesis and Policy Reaction to the Term Spread: Some Comparative Evidence

Gianna Boero () and Costanza Torricelli ()

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: The aim of this paper is to evaluate the impact of monetary policy in tests of the Expectations Hypothesis of the term structure of interest rates. We apply the model developed by McCallum (1994b), in which the Expectations Hypothesis interacts with a policy reaction function and with a time-varying term premium, to eight countries with different monetary policy stances, within the period 1985 to 1995. The results suggest the importance of the treatment of monetary policy in explaining the empirical performance of the Expectations Hypothesis. Amongst other results, we also find that the model performs better for some countries than others depending upon the monetary policy stance adopted.

Keywords: EXPECTATIONS; INTEREST RATE; MONETARY POLICY (search for similar items in EconPapers)
JEL-codes: C22 E43 E52 (search for similar items in EconPapers)
Date: 1998
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Working Paper: Tests of the Expectations Hypothesis and Policy Reaction to the Term Spread: some comparative evidence (1998) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:512

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