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The expectations hypothesis, term premia, and the Canadian term structure of interest rates

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  • Walid Hejazi
  • Huiwen Lai
  • Xian Yang

Abstract

In this paper monthly data are used over the period 1960:7 to 1995:12 to examine the determinants of term premia implicit in the Canadian T-bill term structure of interest rates. In sharp contrast to U.S. evidence, the conditional variances of Canadian macroeconomic variables are found to be insignificant predictors of term premia in the Canadian T-bill term structure. The conditional variances of U.S. macroeconomic variables, however, are found to be important determinants of Canadian term premia.

Suggested Citation

  • Walid Hejazi & Huiwen Lai & Xian Yang, 2000. "The expectations hypothesis, term premia, and the Canadian term structure of interest rates," Canadian Journal of Economics, Canadian Economics Association, vol. 33(1), pages 133-148, February.
    • Handle: RePEc:cje:issued:v:33:y:2000:i:1:p:133-148
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    Citations

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    Cited by:

    1. Lange, Ronald H., 2014. "The small open macroeconomy and the yield curve: A state-space representation," The North American Journal of Economics and Finance, Elsevier, vol. 29(C), pages 1-21.
    2. Jongen, Ron & Verschoor, Willem F.C. & Wolff, Christian C.P., 2011. "Time-variation in term premia: International survey-based evidence," Journal of International Money and Finance, Elsevier, vol. 30(4), pages 605-622, June.
    3. Godbout, Lise & Storer, Paul & Zimmermann, Christian, 2002. "The Canadian treasury bill auction and the term structure of interest rates," Journal of Banking & Finance, Elsevier, vol. 26(6), pages 1165-1179, June.
    4. Modena, Matteo, 2008. "Yield curve, time varying term premia, and business cycle fluctuations," MPRA Paper 8873, University Library of Munich, Germany.
    5. Wolff, Christian & Verschoor, Willem F C & Jongen, Ron, 2005. "Time Variation in Term Premia: International Evidence," CEPR Discussion Papers 4959, C.E.P.R. Discussion Papers.
    6. Walid Hejazi, 2000. "Yield spreads as predictors of industrial production: expectations on short rates or term premia?," Applied Economics, Taylor & Francis Journals, vol. 32(8), pages 945-951.
    7. Fabrizio Casalin, 2007. "Single Equation Models, Co-Integration and the Expectations Hypothesis of the Term Structure of Interest Rates," Working Papers 110, University of Milano-Bicocca, Department of Economics, revised 2007.
    8. Mustapha Olalekan Ojo & Luís Aguiar-Conraria & Maria Joana Soares, 2020. "A time–frequency analysis of the Canadian macroeconomy and the yield curve," Empirical Economics, Springer, vol. 58(5), pages 2333-2351, May.
    9. Matteo Modena, 2008. "The Term Structure and the Expectations Hypothesis: a Threshold Model," Working Papers 2008_36, Business School - Economics, University of Glasgow.
    10. Samih Antoine Azar, 2018. "Forward Unbiasedness in the Short End of the Interest Rate Market," International Business Research, Canadian Center of Science and Education, vol. 11(2), pages 70-78, February.
    11. Grahame Johnson, 2003. "Measuring Interest Rate Expectations in Canada," Staff Working Papers 03-26, Bank of Canada.
    12. Lange, Ronald H., 2013. "The Canadian macroeconomy and the yield curve: A dynamic latent factor approach," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 261-274.
    13. Lange, Ronald Henry, 2018. "The term structure of liquidity premia and the macroeconomy in Canada: A dynamic latent-factor approach," International Review of Economics & Finance, Elsevier, vol. 57(C), pages 164-182.
    14. Musti, Silvana & D'Ecclesia, Rita Laura, 2008. "Term structure of interest rates and the expectation hypothesis: The euro area," European Journal of Operational Research, Elsevier, vol. 185(3), pages 1596-1606, March.
    15. Walid Hejazi & Zhixin Li, 2000. "Are forward premia mean reverting?," Applied Financial Economics, Taylor & Francis Journals, vol. 10(4), pages 343-350.

    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G1 - Financial Economics - - General Financial Markets

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