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

Author(s): Stefan Gerlach and Frank Smets

Publication Date: October 1995

Keyword(s): Expectations Hypothesis and Term Structure of Interest Rates

Programme Area(s): International Macroeconomics

Abstract: This paper studies one-, three-, six- and twelve-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 time-varying term premium, for many countries the expectations hypothesis is broadly compatible with the data.

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Bibliographic Reference

Gerlach, S and Smets, F. 1995. 'The Term Structure of Euro-Rates: Some Evidence in Support of the Expectations Hypothesis'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1258