Boero, Gianna - Torricelli, Costanza (1999) The Information in the Term of Structure: further Results for Germany. Working Paper. CRENoS.
Official URL: http://www.crenos.it/working/pdf/99-12.pdf
This paper tests the Expectations Hypothesis (EH) of the term structure of interest rates using new data for Germany. The German term structure appears to forecast future short-term interest rates surprisingly well, compared with previous studies with US data, while it has lower predictive power for long-term interest rates. However, the direction suggested by the coefficient estimates is consistent with that implied by the EH, that is when the term spread widens, long rates increase. The use of instrumental variables to deal with possible measurement errors in the data significantly improves regressions for the long rates. Moreover, reestimation with proxy variables to account for the possibility of time-varying term premia confirms that the evolution of both short and long rates corresponds to the predictions of the EH and that most of the information is in the term spread. These results are important as they suggest that monetary policy in Germany could be guided by the slope of the term structure.
|Item Type:||Technical Report / Working Paper / Project Report (Working Paper)|
|Institution:||Universita' degli Studi di Cagliari|
|Divisions:||Centri > CRENoS Centro Ricerche Economiche Nord Sud|
|Subjects:||Area 13 - Scienze economiche e statistiche > SECS-P/03 Scienza delle finanze|
|Uncontrolled Keywords:||Expectations hypothesis, Interest rate, Term structure, Term premia, Forward rates, Measurement errors, Volatility|
|Deposited On:||14 Nov 2008 08:44|
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