Testing the Expectations Theory of the Term Structure of Interest Rates Using Model-Selection Methods
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John C. Chao
In this paper, we propose a model-selection approach to testing the expectations theory of the term structure of interest rates. Our method is based on the posterior information criterion (PIC) developed and analyzed by Phillips and Ploberger (1994, 1996) and extended to provide order estimation of cointegrating rank by Chao and Phillips (1997). This methodology has the advantage that issues of order selection—i.e., the determination of lag length and cointegrating rank in a vector autoregression—and hypothesis testing are treated within the same framework. Applying our procedure to interest-rate data from the International Financial Statistics, we find the expectations theory to be inconsistent with the data.
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Articles in the same Issue
- Article
- Testing the Expectations Theory of the Term Structure of Interest Rates Using Model-Selection Methods
- Forecasting Exchange Rates Using Neural Networks for Technical Trading Rules
- Early News is Good News: The Effects of Market Opening on Market Volatility
- GARCH for Irregularly Spaced Financial Data: The ACD-GARCH Model
- The Current Depth-of-Recession and Unemployment-Rate Forecasts
- Predictive Evaluation of Econometric Forecasting Models in Commodity Futures Markets
