THE EXPECTATION HYPOTHESIS OF THE TERM STRUCTURE OF INTEREST RATES: EVIDENCE FROM SELECTED HIGH INCOME OECD COUNTRIES

Abstract

This paper empirically investigates the expectation hypothesis of the term structure of interest rates for selected high income OECD countries over the period from 1990:01 through 2010:04 by means of fractional cointegration approach. The results show that long term and short term interest rates for all selected countries are not fractionally cointegrated, implying unvalidity of the expectation hypothesis of the term structure.