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Testing the expectations hypothesis when interest rates are near integrated
Division of Monetary Affairs, Board of Governors of the Federal Reserve System.
Division of International Finance, Board of Governors of the Federal Reserve System.
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Economics.
2009 (English)In: Journal of Banking & Finance, ISSN 0378-4266, Vol. 33, no 5, 934-943 p.Article in journal (Refereed) Published
Abstract [en]

Nominal interest rates are unlikely to be generated by unit-root processes. Using data on short and long interest rates from eight developed and six emerging economies, we test the expectations hypothesis using cointegration methods under the assumption that interest rates are near integrated. If the null hypothesis of no cointegration is rejected, we then test whether the estimated cointegrating vector is consistent with that suggested by the expectations hypothesis. The results show support for cointegration in 10 of the 14 countries we consider, and the cointegrating vector is similar across countries. However, the parameters differ from those suggested by theory. We relate our findings to existing literature on the failure of the expectations hypothesis and to the role of term premia.

Place, publisher, year, edition, pages
2009. Vol. 33, no 5, 934-943 p.
Keyword [en]
Bonferroni tests, Cointegration, Expectations hypothesis, Near integration, Term premium
National Category
Research subject
URN: urn:nbn:se:uu:diva-108481DOI: 10.1016/j.jbankfin.2008.10.008ISI: 000264614700016OAI: oai:DiVA.org:uu-108481DiVA: diva2:236031
Available from: 2009-09-20 Created: 2009-09-20 Last updated: 2010-12-29Bibliographically approved

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