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The Expectations Hypothesis of the Term Structure: Some Empirical Evidence for Portugal

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  • Silva Lopes, Artur C.
  • Monteiro, Olga Susana

Abstract

The purpose of this paper is to test the (rational) expectations hypothesis of the term structure of interest rates using Portuguese data for the interbank money market. The results obtained support only a very weak, long-run or "asymptotic" version of the hypothesis, and broadly agree with previous evidence for other countries. The empirical evidence supports the cointegration of Portuguese rates and the "puzzle" well known in the literature: although its forecasts of future short-term rates are in the correct direction, the spread between longer and shorter rates fails to forecast future longer rates. In the single equation framework, the implications of the hypothesis in terms of the predictive ability of the spread are also clearly rejected, even for the more stable period which emerged in the middle nineties.

Suggested Citation

  • Silva Lopes, Artur C. & Monteiro, Olga Susana, 2007. "The Expectations Hypothesis of the Term Structure: Some Empirical Evidence for Portugal," MPRA Paper 6310, University Library of Munich, Germany, revised 14 Dec 2007.
    • Handle: RePEc:pra:mprapa:6310
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    More about this item

    Keywords

    term structure of interest rates; expectations hypothesis; hypothesis testing; cointegration; Portugal;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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