The Rational Expectations Hypothesis of the Term Structure, Monetary Policy, and Time-Varying Term Premia

17 Pages Posted: 15 Nov 2012

See all articles by Michael Dotsey

Michael Dotsey

Federal Reserve Bank of Philadelphia

Chris Otrok

University of Missouri; Federal Reserve Banks - Federal Reserve Bank of St. Louis

Date Written: 1995

Abstract

Most empirical studies of the rational expectations hypothesis of the term structure find that the data offer little support for the theory. This observation has led some investigators to search for alternative “irrational” theories of behavior in order to explain the data. The authors, on the other hand, find that a model that incorporates Federal Reserve behavior and a reasonable parameterization of term premia is consistent with empirical results.

Suggested Citation

Dotsey, Michael and Otrok, Christopher, The Rational Expectations Hypothesis of the Term Structure, Monetary Policy, and Time-Varying Term Premia (1995). FRB Richmond Economic Quarterly, vol. 81, no. 1, Winter 1995, pp. 65-81, Available at SSRN: https://ssrn.com/abstract=2129375

Michael Dotsey (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

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Christopher Otrok

University of Missouri ( email )

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Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

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