The term structure of Euro-rates: some evidence in support of the expectations hypothesis

This paper studies 1-, 3-, 6- and 12-month Euro-rates for 17 countries using between 10 and 30 years of data. Term spreads contain information about future short-term rates in all 51 regressions that we estimate. Moreover, in 35 cases we are unable to reject the expectations hypothesis. Using cross-...

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Bibliographic Details
Published inJournal of international money and finance Vol. 16; no. 2; pp. 305 - 321
Main Authors Gerlach, Stefan, Smets, Frank
Format Journal Article
LanguageEnglish
Published Guildford Elsevier Ltd 01.04.1997
Elsevier
Butterworth Scientific Ltd
Elsevier Science Ltd
SeriesJournal of International Money and Finance
Subjects
Econometrics
Euromarkets
Hypotheses
Interest rates
Manycountries
Regression analysis
Studies
Europe
E4
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Summary:This paper studies 1-, 3-, 6- and 12-month Euro-rates for 17 countries using between 10 and 30 years of data. Term spreads contain information about future short-term rates in all 51 regressions that we estimate. Moreover, in 35 cases we are unable to reject the expectations hypothesis. Using cross-sectional regressions, we estimate the variance of the term premium and the correlation of the term premium and the expected change in short rates. We conclude that, despite evidence of a time-varying term premium, for many countries the expectations hypothesis is broadly compatible with the data.
ISSN:0261-5606
1873-0639
DOI:10.1016/S0261-5606(96)00050-2