This article investigates whether the (rational) expectations hypothesis holds for Australian yield data (it does not), whether the hypothesis holds after adjusting for term premia estimated from an affine term structure model (it appears to) and whether the yield process implied by the term...

When agents have rational expectations, anticipated changes in the structure of the economy have an immediate affect on their behaviour. In this article, we investigate the interplay between a linear rational expectation model with predictable structural changes and reduced-form evidence of...