34 Pages Posted: 7 Jan 2011
Date Written: June 1, 1996
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: 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
By N. Mankiw