The Monotonicity of the Term Premium: Another Look
Posted: 18 Jul 2001
This paper reexamines evidence on the monotonicity of the term premium. Using a recently developed approach for testing inequality constraints, we propose and conduct tests for whether the term premium is monotonic and reach different conclusions from those implied by individual "t- statistics" on term premiums, even under a Bonferroni-type adjustment. Our results generally support McCulloch's (1987) view that the liquidity preference hypothesis remains unrefuted.
JEL Classification: G14
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