Predictable changes in yields and forward rates /

We consider the patterns in the predictability of interest rates expectations hypothesis (EH), and attempt to account for them with affine models. We make the following points: (i) Discrepancies in the data from the EH take a particularly simple form with forward rates: as theory suggests, the large...

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Bibliographic Details

Corporate Author:	National Bureau of Economic Research
Other Authors:	Backus, David
Format:	Book
Language:	English
Published:	Cambridge, Mass. : National Bureau of Economic Research, [1998], ©1998.
Series:	Working paper series (National Bureau of Economic Research) ; no. 6379.
Subjects:	Interest rates > Forecasting > Econometric models. Interest rates.
Summary:	We consider the patterns in the predictability of interest rates expectations hypothesis (EH), and attempt to account for them with affine models. We make the following points: (i) Discrepancies in the data from the EH take a particularly simple form with forward rates: as theory suggests, the largest discrepancies are at short maturities. (ii) Reasonable estimates of one-factor Cox-Ingersoll-Ross models imply regressions on the opposite side of the EH than we see in the data: regression slopes are greater than one (iii) Multifactore affine models can nevertheless approximate both departures from the EH and other properties of interest rates.