The term premium and the puzzles of the expectations hypothesis of the term structure
A puzzle well known in the literature of the term structure is that the term spread between long and short rates fails to forecast future long rates although its forecasts of future short term rates are in the correct direction with the pure version of the rational expectations hypothesis of the ter...
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| Veröffentlicht in: | Economic modelling 2004, Vol.21 (1), p.73-93 |
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| creator | Tzavalis, Elias |
| description | A puzzle well known in the literature of the term structure is that the term spread between long and short rates fails to forecast future long rates although its forecasts of future short term rates are in the correct direction with the pure version of the rational expectations hypothesis of the term structure. This paper shows that the term spread puzzles can be attributed to the different volatility of the term premia corresponding to the above two versions of the term spread models of the expectations hypothesis, respectively. The relationship across the different premia of these models translates into a link between the bias in the slope coefficient of the two term spread models. |
| doi_str_mv | 10.1016/S0264-9993(02)00084-6 |
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| source | RePEc; Elsevier ScienceDirect Journals Complete |
| subjects | Economic models Economic theory Economics Forecasts Hypotheses Interest rates Monetary policy Rational expectations Regression analysis Short term Studies Term structure Vector autoregression |
| title | The term premium and the puzzles of the expectations hypothesis of the term structure |
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