摘要
The expectation hypothesis of interest rate term structure theory posits an implication: in a system of p interest rates of different maturity there should be one common trend driving interest rates, corresponding to p-1 cointegration vectors, and in each of these vectors the coefficients should sum to zero, giving stationary interest rate spreads.\;This paper analyses the cointegration implications of the expectation hypothesis on UK interest rates. Two types of tests have been carried out in the analysis. The first is the test of the implication that pairs of two interest rates cointegrate into stationary spreads. The second is the test of the cointegration implications on a full system of interest rates of different maturity. This analysis has been carried out using the VAR technique. The results in general favour the expectation hypothesis: the UK term structure of interest rate is driven by one common stochastic trend, and the interest rate spreads are generally found to be stationary. The validity of the expectation hypothesis suggests that the central bank can have a direct effect on long interest rates by operating at the short end of the market.
The expectation hypothesis of interest rate term structure theory posits an implication: in a system of p interest rates of different maturity there should be one common trend driving interest rates, corresponding to p-1 cointegration vectors, and in each of these vectors the coefficients should sum to zero, giving stationary interest rate spreads.\;This paper analyses the cointegration implications of the expectation hypothesis on UK interest rates. Two types of tests have been carried out in the analysis. The first is the test of the implication that pairs of two interest rates cointegrate into stationary spreads. The second is the test of the cointegration implications on a full system of interest rates of different maturity. This analysis has been carried out using the VAR technique. The results in general favour the expectation hypothesis: the UK term structure of interest rate is driven by one common stochastic trend, and the interest rate spreads are generally found to be stationary. The validity of the expectation hypothesis suggests that the central bank can have a direct effect on long interest rates by operating at the short end of the market.
