Title: Regime-Switching Models and Test of the Expectations Theory of the Term Structure of Interest Rates in France
Abstract: Empirical studies of long-term interest rate behavior using the Campbell-Shiller (1987) methodology generally observe spread
overreaction compared with the movements implied by the expectations theory of the term structure of interest rates, especially for
the United States. However, this finding is based on a particular specification of short-term interest rate behavior. This paper
addresses two questions. First of all, we look at whether the use of a Markov switching VAR model improves the acceptance of the
theory for France by taking into account any regime shifts in the stochastic process followed by the vector autoregression. We then
study the effect of macroeconomic factors on the division of the period between the two states. We find that Markov chain models
improve the statistical acceptance of the expectations theory and identify the effect of the French franc-deutsch mark exchange rate
on the empirical findings.
Publication Year: 2004
Publication Date: 2004-01-01
Language: en
Type: article
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