We explore the effect of volatility in the federal funds market on the expectations hypothesis in money markets. We find that lower volatility in the bank funding markets market, all else equal, leads to a lower term premium and thus longer-term rates for a given setting of the overnight rate....

The paper tests the hypothesis of a maturity-independent foreign exchange risk premium or equivalently of a constant elasticity of substitution of international assets across the maturity spectrum. The empirical findings indicate that elasticity of substitution is indeed a function of maturity....

This paper focuses on the expectations hypothesis of the term structure on long-term government bonds. Standard tests (based on the relationships between the change in the long-term rate and the spread and between the change in the short-term rate and the spread) lead to a puzzle close to the...

This paper evaluates the information content of the term structure about future changes in interest rates and changes in inflation rate, in France. A data set has been constructed, which contains zero-coupon yield curves on government bonds over the period 1980-95. The information content is...

This paper researches the change in regional specialisation and industry concentration in South African (SA) manufacturing 1970-96, and evaluates possible determinants of industry location. No evident trend towards greater regional specialisation or despecialisation emerges over most of the...

The present paper sheds further light on a well-known (alleged) violation of the expec- tations hypothesis of the term structure (EHT) - the frequent finding of unit roots in interest rate spreads. We show that the EHT implies (i) that the nonstationarity stems from the holding premium, which is...

The purpose of this paper is to test both short- and long-run implications of the (rational) expectations hypothesis of the term structure of interest rates using Portuguese data for the interbank money market. The results support only a very weak, long-run or “asymptotic” version of the...

Liquidity plays an important role in explaining how banks determine their allocation of funds. This paper analyses whether this fact can explain the term structure of interest rates and yield spreads. The paper models banks' demand for liquidity in a manner similar to that used to study...

The expectations hypothesis implies that the yield curve provides information on the future change in the short-term interest rate. However, transaction costs exist in the financial market, which prevent investors from realizing the arbitrage opportunity, when the arbitrage does not fully cover...

This paper investigates the validity of the expectations hypothesis (EH) with time-varying, albeit stationary, term premia in the Ecu Treasury bill market. The analysis utilises the term premium factor representation proposed by Tzavalis and Wickens (1997) and the modified VAR approach by...