Testing the Expectations Theory of the Term Structure of Interest Rates in Threshold Models
Macroeconomic Dynamics, 2003, 7, 4, 567-585
CLEMENTS, Michael P., GALVAO, Ana Beatriz C., Testing the Expectations Theory of the Term Structure of Interest Rates in Threshold Models, Macroeconomic Dynamics, 2003, 7, 4, 567-585 - https://hdl.handle.net/1814/16416
Retrieved from Cadmus, EUI Research Repository
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.
Cadmus permanent link: https://hdl.handle.net/1814/16416
Full-text via DOI: 10.1017/S1365100502020163; 10.1017/S1365100502020163
Publisher: Cambridge Univ Press
Keyword(s): term structure expectations theory threshold models
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