Working Paper Series no. 46: VAR Model and the Test of the Expectations Hypothesis of the Term Structure (in French)

Abstract

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