The Expectations Hypothesis, Term Premia, and the Canadian Term Structure of Interest Rates

Abstract

In this paper monthly data are used over the period 1960:7 to 1995:12 to examine the determinants of term premia implicit in the Canadian T-bill term structure of interest rates. In sharp contrast to U.S. evidence, the conditional variances of Canadian macroeconomic variables are found to be insignificant predictors of term premia in the Canadian T-bill term structure. The conditional variances of U.S. macroeconomic variables, however, are found to be important determinants of Canadian term premia.

JEL Classification: E43, G1