The Expectations Hypothesis of the Term Structure: Tests on US, German, French, and UK Euro-Rates

34 Pages Posted: 7 Jan 2011  

Eric Jondeau

University of Lausanne - Faculty of Business and Economics (HEC Lausanne); Swiss Finance Institute

Roland Ricart

Banque de France

Date Written: June 1, 1996

Abstract

This paper deals with tests of the expectations hypothesis of the term structure on French, German, UK and US short-term interest rates. Three tests are examined: the first is based on forward rates and the other two are based on the interest rates spread. First, we show that the puzzle highlighted by Campbell and Shiller (1991) for US data does not hold in the cases of French and UK short-term rates. Second, we propose tests for the expectations hypothesis based on error-correction specifications. These tests are shown to be much more favorable for the theory and the initial puzzle disappears.

Keywords: Term structure of interest rates, Expectations hypothesis, Error-correction model

JEL Classification: E43

Suggested Citation

Jondeau, Eric and Ricart, Roland, The Expectations Hypothesis of the Term Structure: Tests on US, German, French, and UK Euro-Rates (June 1, 1996). Banque de France Working Paper No. 35. Available at SSRN: https://ssrn.com/abstract=1734758 or http://dx.doi.org/10.2139/ssrn.1734758

Eric Jondeau (Contact Author)

University of Lausanne - Faculty of Business and Economics (HEC Lausanne) ( email )

Extranef 232
Lausanne, 1012
Switzerland
+41 21 692 33 49 (Phone)

HOME PAGE: http://www.hec.unil.ch/ejondeau/

Swiss Finance Institute ( email )

40, Boulevard du Pont-d'Arve
40, Bd du Pont-d'Arve
1211 Geneva 4, CH-6900
Switzerland
+41 21 692 33 49 (Phone)

Roland Ricart

Banque de France ( email )

Paris
France

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