This paper tes ts 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 interes t rates surprisingly well, compared with previous studies with US data,while it has lower predictive power for long-term interes t rates . However, the directionvsuggested 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 ins trument al variables to deal with pos sible measurement errors in the data significantly improves regressions for the long rates . Moreover, re-estimation with proxy variables to account for the possibility of time-varying term premia confirms that the evolut ion of both short andlong rates corresponds to the predictions of the EH and that mos t of the information is in the term spread. These results are important as they sugge s t that monetar y policy in Germany could be guided by the slope of the term structure.

The information content in the term structure of German interest rates / Torricelli, Costanza; Boero, G.. - In: EUROPEAN JOURNAL OF FINANCE. - ISSN 1351-847X. - STAMPA. - 8 (1):(2002), pp. 21-45.

The information content in the term structure of German interest rates

TORRICELLI, Costanza;
2002

Abstract

This paper tes ts 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 interes t rates surprisingly well, compared with previous studies with US data,while it has lower predictive power for long-term interes t rates . However, the directionvsuggested 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 ins trument al variables to deal with pos sible measurement errors in the data significantly improves regressions for the long rates . Moreover, re-estimation with proxy variables to account for the possibility of time-varying term premia confirms that the evolut ion of both short andlong rates corresponds to the predictions of the EH and that mos t of the information is in the term spread. These results are important as they sugge s t that monetar y policy in Germany could be guided by the slope of the term structure.
2002
8 (1)
21
45
The information content in the term structure of German interest rates / Torricelli, Costanza; Boero, G.. - In: EUROPEAN JOURNAL OF FINANCE. - ISSN 1351-847X. - STAMPA. - 8 (1):(2002), pp. 21-45.
Torricelli, Costanza; Boero, G.
File in questo prodotto:
Non ci sono file associati a questo prodotto.
Pubblicazioni consigliate

Licenza Creative Commons
I metadati presenti in IRIS UNIMORE sono rilasciati con licenza Creative Commons CC0 1.0 Universal, mentre i file delle pubblicazioni sono rilasciati con licenza Attribuzione 4.0 Internazionale (CC BY 4.0), salvo diversa indicazione.
In caso di violazione di copyright, contattare Supporto Iris

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11380/459630
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus ND
  • ???jsp.display-item.citation.isi??? ND
social impact