The term structure of Euro-rates: Some evidence in support of the expectations hypothesis

This paper studies 1-, 3-, 6- and 12-month Euro-rates for 17 countries using between 10 and 30 years of data. Term spreads contain information about future short-term rates in all 51 regressions that we estimate. Moreover, in 35 cases we are unable to reject the expectations hypothesis. Using cross-sectional regressions, we estimate the variance of the term premium and the correlation of the term premium and the expected change in short rates. We conclude that, despite evidence of a time-varying term premium, for many countries the expectations hypothesis is broadly compatible with the data. (C) 1997 Elsevier Science Ltd.