The Yield Curve and the Interest Rates Expectations on Fixed Income Market in Colombia Between 2002 and 2007
How does the yield curve incorporate expectations on the Colombian future short-term interest rates? Two theories have been proposed to explain it: the Expectation Hypothesis and the Liquidity Preference Hypothesis. This paper tests both theories for the TES yield curve as well as for the CDT yield curve, using time-series models that account for the persistence and heteroskedasticity of interest rates. The results support the Liquidity Preference Hypothesis, consistent with the fact that in Colombia long-term rates have been consistently higher than short-term rates. However we found evidence of some predictive power of the long-term rates on the future short term rates, consistent with the Expectation Hypothesis.
Year of publication: |
2008
|
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Authors: | Rueda, Diego Agudelo ; Arango, Mónica Arango |
Published in: |
Lecturas de Economía. - Departamento de Economía, ISSN 0120-2596. - 2008, 68, p. 39-66
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Publisher: |
Departamento de Economía |
Subject: | expectations hypothesis | liquidity preference theory | term structure of interest rates | capital markets | fixed income |
Saved in:
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