Clements, Michael P. and Galvão, Ana Beatriz C. (Ana Beatriz Camatari) (2003) Testing the expectations theory of the term structure of interest rates in threshold models. Macroeconomic Dynamics, Vol.7 (No.4). pp. 567-585. doi:10.1017/S1365100502020163 ISSN 1365-1005.

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Abstract

We test the expectations theory of the term structure of U.S. interest rates in nonlinear systems. These models allow the response of the change in short rates to past values of the spread to depend upon the level of the spread. The nonlinear system is tested against a linear system, and the results of testing the expectations theory in both models are contrasted. We find that the results of tests of the implications of the expectations theory depend on the size and sign of the spread. The long maturity spread predicts future changes of the short rate only when it is high.

Item Type:	Journal Article
Subjects:	H Social Sciences > HB Economic Theory
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Interest rates -- United States -- Econometric models, Rational expectations (Economic theory), Economic forecasting -- United States, Nonlinear systems
Journal or Publication Title:	Macroeconomic Dynamics
Publisher:	Cambridge University Press
ISSN:	1365-1005
Official Date:	September 2003
Dates:	Date Event September 2003 Published
Volume:	Vol.7
Number:	No.4
Page Range:	pp. 567-585
DOI:	10.1017/S1365100502020163
Status:	Peer Reviewed
Access rights to Published version:	Open Access (Creative Commons)
Funder:	Economic and Social Research Council (Great Britain) (ESRC)
Grant number:	L138251009 (ESRC)

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