Testing the expectations hypothesis when interest rates are near integrated
By: Meredith Beechey, Erik Hjalmarsson, and Par Osterholm.
Contributors: Hjalmarsson, Erik.; Osterholm, Par.
Series: International finance discussion papers -- no. 953; International finance discussion papers (Online) -- no. 953.
Publisher: Federal Reserve Board
Published: 2008
Place of publication: Washington, D.C
Language: eng
Format: Electronic resource
Description: "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 ten of the fourteen 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"--Federal Reserve Board web site.
Notes: Title from PDF file as viewed on 6/22/2009.

Includes bibliographical references.

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