The Term Structure of Interest Rates across Frequencies

36 Pages Posted: 23 Dec 2008

See all articles by Katrin Assenmacher

Katrin Assenmacher

Swiss National Bank

Stefan Gerlach

Central Bank of Ireland; Centre for Economic Policy Research (CEPR)

Date Written: December 3, 2008

Abstract

This paper tests the expectations hypothesis (EH) of the term structure of interest rates in US data, using spectral regression techniques that allow us to consider different frequency bands. We find a positive relation between the term spread and the change in the long-term interest rate in a frequency band of 6 months to 4 years, whereas the relation is negative at higher and lower frequencies. We confirm that the variance of term premia relative to expected changes in long-term interest rates dominates at high and low frequencies, leading the EH to be rejected in those bands but not in the intermediate frequency band.

Keywords: Expectations theory of the term structure, interest rates, spectral regression, frequency domain

JEL Classification: C22, E43

Suggested Citation

Assenmacher, Katrin and Gerlach, Stefan, The Term Structure of Interest Rates across Frequencies (December 3, 2008). ECB Working Paper No. 976, Available at SSRN: https://ssrn.com/abstract=1310611

Katrin Assenmacher (Contact Author)

Swiss National Bank ( email )

Borsenstrasse 15
CH-8022 Zurich
Switzerland

Stefan Gerlach

Central Bank of Ireland ( email )

P.O. Box 559
Dame Street
Dublin, 2
Ireland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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