Tests of the expectations hypothesis and policy reaction to the term spread: some comparative evidence
Boero, Gianna and Torricelli, Costanza (1998) Tests of the expectations hypothesis and policy reaction to the term spread: some comparative evidence. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.512).
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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.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HB Economic Theory|
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Rational expectations (Economic theory), Interest rates, Monetary policy, Economics -- Mathematical models|
|Series Name:||Warwick economic research papers|
|Publisher:||University of Warwick, Department of Economics|
|Place of Publication:||Coventry|
|Official Date:||July 1998|
|Number of Pages:||28|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
|Funder:||Consiglio nazionale delle ricerche (Italy) (CNR)|
|Grant number:||CNR97.01050.CT10 (CNR), CNR97.01211.CT10 (CNR)|
Bekaert, Hodrick and Marshall, 1997, On biases in tests of the expectations hypothesis of the term structure of interest rates, Journal of Financial Economics, 44, 309-348.
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