Document Type
Article
Department
Economics
Publication Date
1-2015
Abstract
Monthly interest rate forecasts from nearly 50 major financial institutions are used to examine the expectations hypothesis at the short end of the term structure for the Canadian T-bill market and Libor markets in the US, UK, and Switzerland. Using CVARs, the term premium is found to move inversely with consumer sentiment in all four samples at the 1% level. Extension to the polynomial CVAR also suggests that a fall in the interest rate raises the premium, at least temporarily. This is interpreted as arising from the decreasing upside potential for bond price movements related to the zero lower bound.
Comments
Author's manuscript provided by Trinity College Digital Repository in accordance with publisher distribution policies.
Published version available: http://www.sciencedirect.com/science/article/pii/S1042443115000050
Josh R. Stillwagon. “Testing the Expectations Hypothesis with Survey Forecasts: The Impacts of Consumer Sentiment and the Zero Lower Bound in an I(2) CVAR.” Journal of International Financial Markets, Institutions & Money 35, no. 5 (2015): 85-101.