We document extreme bias and dispersion in the small sample distributions of five standard regression tests of the expectations hypothesis of the term structure of interest rates. These biases derive from the extreme persistence in short interest rates. We derive approximate analytic expressions...

This article was originally presented as a speech at the Association for University Business and Economic Research (AUBER) Annual Meeting, University of Memphis, Memphis, Tennessee, October 16, 2006.

“Expectations” is the Twenty-Second Henry Thornton Lecture, given by the author at the Department of Banking and Finance, City University Business School, London, England, on November 28, 2000.

Presentation at the 22nd Henry Thornton Lecture, City University Business School, London, England - Nov. 28, 2000

We provide a tractable model to study monetary policy under discretion. We restrict our analysis to Markov equilibria. We find that for all parametrizations with an equilibrium inflation rate of about 2 percent, there is a second equilibrium with an inflation rate just above 10 percent. Thus,...

We jointly test the rationality of the Federal Reserve’s Greenbook forecasts of infiation, unemployment, and output growth using a multivariate nonseparable asymmetric loss function. We find that the forecasts are rationalizable and exhibit directional asymmetry. The degree of asymmetry...