Testing the expectations theory of the term structure for New Zealand

Abstract

This paper tests the rational expectations theory of the term structure using recent daily, weekly, and monthly observations on New Zealand interest rates. We find that for many maturities we cannot reject the expectations hypothesis using both short and long versions of the theory. These results are interpreted as further evidence that the failure of the expectations hypothesis in the United States is due to the specific interest rate smoothing behaviour of the Federal Reserve.

Notes

Graeme Guthrie, School of Economics and Finance, Victoria University of Wellington; Julian Wright, Department of Economics, University of Auckland; Jun Yu, Department of Economics, University of Auckland.