The Term Structure of Euro-Rates: Some Evidence in Support of the Expectations Hypothesis

38 Pages Posted: 13 Dec 2005

See all articles by Stefan Gerlach

Stefan Gerlach

Central Bank of Ireland; Centre for Economic Policy Research (CEPR)

Frank Smets

European Central Bank (ECB); KU Leuven - Center for Economic Studies

Date Written: August 1995

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.

Suggested Citation

Gerlach, Stefan and Smets, Frank, The Term Structure of Euro-Rates: Some Evidence in Support of the Expectations Hypothesis (August 1995). BIS Working Paper No. 28, Available at SSRN: https://ssrn.com/abstract=863364 or http://dx.doi.org/10.2139/ssrn.863364

Stefan Gerlach (Contact Author)

Central Bank of Ireland ( email )

P.O. Box 559
Dame Street
Dublin, 2
Ireland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Frank Smets

European Central Bank (ECB) ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
+49 69 1344 6550 (Phone)
+49 69 1344 6575 (Fax)

KU Leuven - Center for Economic Studies ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

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