Explaining the Failure of the Expectations Hypothesis with Short-Term Rates
Type
presentation
Date Issued
2017-04-05
Author(s)
Abstract
This paper provides the rst systematic study of the temporal and cross-sectional Variation in the risk premium of the expectations hypothesis (EH) at very short end of the term structure. Using a unique and comprehensive dataset of European repurchase (repo) rates, we explain the sources and time variation a ecting the risk premium. Our results show that the EH cannot be rejected when loans are secured by safe collateral and that unconventional monetary policy can substantially reduce risk premiums. By contrast, the EH is violated when interest rates are a ected by funding risk and collateral risk
Keywords
Expectations hypothesis
interest rates
risk premium
monetary policy
repo
HSG Classification
contribution to scientific community
Event Title
Research Seminar hosted at University of Aarhus
Event Location
Aarhus
Event Date
5. April 2017
Eprints ID
251178