Alternative Tests of Rational Expectations Models: The Case of the Term Structure
27 Pages Posted: 27 Mar 2001 Last revised: 16 Jan 2022
Date Written: October 1980
Abstract
A linearized version of the rational expectations models of the term structure is put forth in terms of a complete vector of equally spaced observations along the yield curve. A data series on intermediate maturity yields which meets the specifications of the model is presented. The model is tested against a specific and easily interpreted alternative. Earlier studies of rational expectations models, which used "volatility tests" or "likelihood ratio tests," are discussed.
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