Journal of Political Economy Vol. 87 No. 6 1979
The Volatility of Long-Term Interest Rates and Expectations Models of the Term Structure
Abstract
Models which represent long-term interest rates as long averages of expected short-term interest rates imply, because of the smoothing implicit in the averaging, that long rates should not be too volatile. The volatility of actual long-term interest rates, as measured by the variance of short-term holding yields on long-term bonds, appears to exceed limits imposed by the models. Such excess volatility implies a kind of forecastability for long rates. Long rates show a slight tendency to fall when they are high relative to short rates rather than rise as predicted by expectations models.
- DOI
- 10.1086/260832
- Volume
- 87
- Issue
- 6
- Pages
- 1190-1219
- Language
- en
- Sources
- openalex crossref