"'Peso Problem' Explanations for Term Structure Anomalies"
©
Journal of Monetary Economics,
October
2001
Volume: 48
|
Issue: 2
|
Pages: 241-70
Publication type: Journal article
Research Archive Topic: Business Economics and Public Policy, World Business
Abstract
We investigate whether term structure anomalies in U.S. data may be due to a generalized peso problem, in which a high-interest-rate regime occurred less frequently in the U.S. sample than was rationally anticipated. We formalize this idea by estimating a regime-switching model of short-term interest rates with data from seven countries. Under the small-sample distributions generated by the model, the expectations hypothesis is rejected. When we allow moderate time variation in term premiums, the term-premium dynamics interact with peso-problem effects to generate small-sample distributions more consistent with the data. Nonetheless, our model cannot fully account for U.S. term structure anomalies.
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