Expectations, Surprises and Treasury Bill Rates: 1960-82

25 Pages Posted: 23 Apr 2004 Last revised: 14 Oct 2008

See all articles by Patric H. Hendershott

Patric H. Hendershott

University of Aberdeen - Centre for Property Research; National Bureau of Economic Research (NBER)

Date Written: 1984

Abstract

Changes in six-month bill rates over semiannual periods in the 1960s and 1970s are successfully related to expected changes and to surprises. The latter include unanticipated changes in expected inflation, in the growth of industrial production and base money, and in inflation uncertainty. Estimation of the basic equation through the middle of 1983 does not suggest anychange in structure. Moreover the equation "explains" 60 percent of the extraordinarily high level of real rates since late 1980, largely owing to an excess of unexpected net increases in anticipated inflation over actualin creases.Our estimates provide some support for the expectations theory; there appears to be information content in six-month forward rates. While this content is swamped by the impact of surprises in equations explaining rate changes in terms of forward rates alone, the content is clear when proxies for the surprises are included in the equations.

Suggested Citation

Hendershott, Patric H., Expectations, Surprises and Treasury Bill Rates: 1960-82 (1984). NBER Working Paper No. w1268, Available at SSRN: https://ssrn.com/abstract=321317

Patric H. Hendershott (Contact Author)

University of Aberdeen - Centre for Property Research ( email )

Aberdeen AB24 2UF
Scotland

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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