This paper deals with the implications of the expectations hypothesis of the term structure on the dynamics of interest rates, which are supposed to have a restricted VAR representation. Constraints on the parameters of the restricted VAR lead us to prefer an indirect estimation based on the error-correction model. This approach is applied to euro-rates over the period 1975-96. The main results are the following: the expectations theory is well accepted for French and UK rates but largely rejected for German and US rates.
Eric Jondeau
September 1997
Classification JEL : E43
Keywords : Expectations hypothesis, Restricted VAR representation, “formal” test
Updated on: 06/12/2018 11:09