Article ID Journal Published Year Pages File Type
5097580 Journal of Econometrics 2006 20 Pages PDF
Abstract
In this paper we develop on the VAR framework, originally proposed by Campbell and Shiller (J. Political Econom 95 (1987) 1062) to evaluate the Expectations Theory, along three dimensions: the use of a testing method based on a real-time procedure, the measurement of the risk premium, the specification of the implicit monetary policy maker's reaction function. We use financial factors and macroeconomic information to construct a test of the theory based on simulating investors' effort to use the model in 'real-time' to forecast future monetary policy rates. The application of our approach to a monthly sample of US data from the eighties onward leads us to conclude that the deviation from the ET are very rarely significant and that fluctuations of risk premia are not large.
Related Topics
Physical Sciences and Engineering Mathematics Statistics and Probability
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