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

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  • Gerlach, Stefan
  • Smets, Frank

Abstract

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. Furthermore, in 35 cases we accept 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. The estimates are compatible with existing informal estimates. We conclude that, despite the presence of a timevarying term premium, for many countries the expectations hypothesis is broadly compatible with the data.
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  • Gerlach, Stefan & Smets, Frank, 1997. "The term structure of Euro-rates: some evidence in support of the expectations hypothesis," Journal of International Money and Finance, Elsevier, vol. 16(2), pages 305-321, April.
    • Handle: RePEc:eee:jimfin:v:16:y:1997:i:2:p:305-321
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    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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