SPREAD OVERREACTION IN INTERNATIONAL BOND MARKETS

Transcription

1 BIS WORKING PAPERS No. 55 SPREAD OVERREACTION IN INTERNATIONAL BOND MARKETS by Grgory D. Sutton Jun 1998 BANK FOR INTERNATIONAL SETTLEMENTS Montary and Economic Dpartmnt BASLE

2 BIS Working Paprs ar wrtn by mmbrs of th Montary and Economic Dpartmnt of th Bank for Intrnational Sttlmnts, and from tim to tim by othr conomists, and ar publishd by th Bank. Th paprs ar on subjcts of topical intrst and ar tchnical in charactr. Th viws xprssd in thm ar thos of thir authors and not ncssarily th viws of th BIS. Bank for Intrnational Sttlmnts 1998 CH-42 Basl, Swzrland Also availabl on th BIS World Wid Wb s ( All rights rsrvd. Brif xcrpts may b rproducd or translatd providd th sourc is statd. ISSN

3 SPREAD OVERREACTION IN INTERNATIONAL BOND MARKETS * by Grgory D. Sutton Jun 1998 Abstract This papr applis th Campbll-Shillr (1987) mthodology to a study of th joint bhaviour of a thr-month and a fiv-yar govrnmnt yild in th Und Stats, Canada, th Und Kingdom, Grmany and Japan. Th priod studid is for most countris th mid-197s to th third quartr of Th mpirical rsults allow th rjction of th xpctations thory of th trm structur at high lvls of statistical significanc in vry country xcpt Japan. Furthrmor, in vry country whr th xpctations thory fails, th failur of th thory is consistnt wh th sprad ovrraction hypothsis of Froot (1989) and Campbll and Shillr (1991). This implis that th dparturs of long rats from lvls prdictd by th xpctations thory in many major markts cannot b attributd to wh nois rror trms. * I would lik to thank Pall Andrsn and Josph Bisignano for thir commnts on arlir vrsions of this papr. I am also indbtd to Stphan Arthur for his statistical and graphical assistanc.

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5 Contnts Introduction Th xpctations thory and VAR-basd spcification tsts VAR-basd spcification tsts of th xpctations thory Sprad ovrraction and comovmnts of trm prmia btwn countris Sprad ovrraction hypothsis Comovmnts of trm prmia btwn countris... 8 Conclusions... 1 Appndix Rfrncs... 1

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7 Introduction In thir study of th bhaviour of US intrst rats, Campbll and Shillr (1991) conclud that th failur of th xpctations thory of th trm structur across th matury spctrum is consistnt wh th sprad ovrraction hypothsis of Froot (1989). 1 According to th sprad ovrraction hypothsis, longr-trm intrst rats ovrract to shifts in th (rational) forcast of th path of shortr-trm intrst rats. Consquntly, long/short intrst rat sprads tnd to b mor volatil than th xpctations thory would prdict. In prvious work (Sutton (1997)), I prsnt vidnc which suggsts that thr is an intrnational componnt to dparturs of long-trm intrst rats from lvls prdictd by th xpctations thory of th trm structur. In that study, I xamin th bhaviour of a thr-month and a tn-yar govrnmnt yild for fiv of th major industrialisd countris (th Und Stats, Canada, th Und Kingdom, Grmany and Japan) from hr th lat 19s or arly 197s to th arly 198s. Th rgrssion tsts rportd in that papr support th viw that thr is a common componnt to prdictabl xcss rturns on long-trm bonds across th markts studid. This implis that trm prmia at th long nd of th trm structur ar both tim-varying and posivly corrlatd across countris. I call this phnomnon xcss comovmnt of bond yilds btwn countris, and suggsts that thr is a common xplanation for th intrnational failur of th xpctations thory at th long nd of th trm structur. 2 Givn th findings of Campbll and Shillr (1991), a candidat xplanation for th intrnational failur of th xpctations thory at th long nd of th trm structur is th sprad ovrraction hypothsis. Th purpos of this papr is to confront th sprad ovrraction hypothsis wh intrnational intrst rat data. To this nd, th papr applis th vctor autorgrssiv mthodology of Campbll and Shillr (1987) to a study of th joint bhaviour of a thr-month and a fiv-yar govrnmnt yild in ach of th sam fiv countris -- th Und Stats, Canada, th Und Kingdom, Grmany and Japan. Th papr is organisd as follows. Sction 1 brifly discusss th Campbll-Shillr (1987) approach to tsting th xpctations thory of th trm structur and rports th rsults of an application of th mthodology to a study of th bhaviour of long/short intrst rat sprads in ach country. On th basis of standard spcification tsts, th xpctations thory of th trm structur is rjctd at high lvls of statistical significanc in vry country xcpt Japan. Furthrmor, th 1 Thr is a vast mpirical lratur which tsts th implications of th xpctations thory of th trm structur wh US intrst rat data. This includs th studis by Shillr (1979), Shillr t al. (198), Campbll and Shillr (1984), Fama (1984) and Fama and Bliss (1987). 2 Hardouvlis (1994) and Sutton (1997) documnt th statistical rjction of th xpctations thory at th long nd of th trm structur in th majory of G-7 countris. 1

8 rsults of th mpirical analysis suggst that, in th majory of markts studid, bond yilds hav in th past displayd rlativly larg dviations from lvls prdictd by th xpctations thory. Sction 2 xamins, in gratr dtail, th failur of th xpctations thory as a modl of th bhaviour of bond yilds intrnationally. It is shown that, in vry country whr th xpctations thory fails, th failur of th thory is consistnt wh th sprad ovrraction hypothsis of Froot (1989) and Campbll and Shillr (1991). This sction also addrsss som of th implications of sprad ovrraction for th comovmnts of trm prmia btwn countris. Th final sction prsnts conclusions. 1. Th xpctations thory and VAR-basd spcification tsts According to th xpctations thory of th trm structur, a long-trm intrst rat quals th sum of a constant trm prmium and a wightd avrag of currnt and xpctd futur short rats. Mor formally, lt R dnot th n-priod bond yild in country i at tim t implid by th xpctations thory and lt r rprsnt th on-priod rat of intrst. Following Shillr t al. (198), th xpctations thory of th trm structur is th statmnt that ths two rats satisfy th rlation n 1, (1.1) R = θi + j = wij Etri, t+ j whr θ i is a constant trm prmium, E t is th xpctations oprator givn tim t information and { w ij } ar wights which dpnd upon th duration of th n-priod bond. Th wights satisfy n i (1.2) w = g (1 g ) /(1 g ), ij j i i whr g i 1/(1 + Ri ) and R i is th avrag n-priod bond yild ovr th sampl priod. follows that Th thortical long/short intrst rat sprad is S R r. From quation (1.1) n 1, j= 1 (1.) S = θi + ωij Et ri, t+ j whr ωij = w ij + wi, j wi, n 1 and r i, t+ j = ri, t+ j ri, t+ j 1. Thus, quation (1.1) implis that th thortical long/short sprad is qual to a constant plus a linar combination of xpctd changs of th on-priod (short) rat. In contrast, th actual sprad, S R r, is th diffrnc btwn th actual long rat in country i at tim t, R, and th on-priod rat. Of cours, th discrpancy btwn th actual and thortical sprads In th mpirical work which follows, th sampl priod is 1975 Q Q. An implication of rlation (1.2) is that th wights in quation (1.1) ar strictly posiv and sum to uny. 2

9 (1.4) ε S S quals th discrpancy btwn th actual and thortical bond yilds. Th Campbll-Shillr approach to tsting th xpctations thory of th trm structur rlis on a comparison of th volutions of actual and thortical sprads, whr a tim sris of thortical sprads is drivd from forcasts of futur short rat changs computd from a bivariat vctor autorgrssion (VAR). Th VAR includs th actual sprad, S, and th chang in th short rat, r. Th approach allows formal statistical tsts of th hypothsis that th actual long/short sprad quals s thortical countrpart undr th xpctations thory. Howvr, th main advantag of th Campbll-Shillr mthodology is that prms an assssmnt of th conomic significanc of dviations of intrst rats from lvls prdictd by th xpctations thory. For xampl, th mthodology allows on to comput an stimat of th standard dviation of th discrpancis ( ε s). This standard dviation nabls on to form a judgmnt on th rlativ importanc of th discrpancis for intrst rat sprad volatily. 1.1 VAR-basd spcification tsts of th xpctations thory Thr ar two standard VAR-basd spcification tsts of th xpctations thory of th trm structur associatd wh th Campbll-Shillr approach. Th first is th sampl corrlation btwn actual and thortical sprads, ρ corr( S, S ). Th scond is th ratio of standard dviations σ ( ) / σ( S), whr σ dnots sampl standard dviation. In larg sampls, ths statistics should b S uny if th xpctations thory is tru. Whn th xpctations thory fails, th distanc from uny of th valus of ths statistics shds light on th mpirical contnt of th xpctations thory as a modl of intrst rat bhaviour. In addion to ths by now standard spcification tsts of th xpctations thory, this study also rports th sampl standard dviation of th discrpancy btwn th actual and thortical long/short sprad, σ (ε). This masur might also provid information about th mpirical contnt of th xpctations thory. Th rsults of applying th Campbll-Shillr mthodology to th study of long/short intrst rat sprads in fiv countris ar rportd blow. Th short-trm (on-priod) rat is th thrmonth rat. Th long rat is a fiv-yar govrnmnt bond yild. Thus, in th contxt of quation (1.1), on priod quals thr months and n=2. Th data ar quartrly and all intrst rats ar nd-ofquartr valus.

10 Actual and thortical sprads* Und Stats Actual Thortical Canada Und Kingdom Grmany Japan * D-mand sprads btwn th fiv-yar govrnmnt bond yild and thr-month mony markt rat. Thortical sprads ar computd from VAR-basd forcasts of futur changs in th thr-month rat. 4

11 Tabl 1 VAR-basd tsts of xpctations thory Und Stats Canada Und Kingdom Grmany Japan ρ.1 (.5).9 (.8).975 (.28).924 (.999).98 (.54) σ(s ) / σ(s).8 (.7).8 (.41).78 (.42).75 (<.1).989 (.24) σ(ε) Not: For all countris xcpt th Und Stats, th stimation priod is 197 Q Q. For th Und Stats, th stimation priod is 1984 Q Q. Numbrs in parnthss ar significanc probabilis computd by Mont Carlo simulation. In th cas of both th corrlation cofficint and th standard dviation ratio, th rportd significanc probabilis ar th fraction of 1, runs for which a valu of th statistic lss than that rportd in th tabl was obtaind. Tabl 1 rports th rsults of th spcification tsts of th xpctations thory discussd abov. Th statistic ρ is th corrlation cofficint btwn actual and thortical sprads. Thortical sprads ar computd from VAR-basd forcasts of quartrly changs in thr-month rats. For ach country, th VAR includs four lags of th actual sprad and four lags of th chang in th thrmonth rat. For all countris xcpt th Und Stats, th stimation priod is 197 Q Q. 4 For th Und Stats, th stimation priod is 1984 Q Q, so that th priod of non-borrowd rsrv targting, which bgan in th lat 197s, is not includd in th sampl. Th corrlation cofficint ρ is clos to uny for all countris xcpt th Und Stats. Significanc probabilis, computd by Mont Carlo simulation, ar rportd in parnthss blow th corrlation cofficints. 5 Th significanc probabilis rprsnt th stimatd probabily of obtaining a valu of ρ lss than that rportd if th xpctations thory of th trm structur holds. Only in th cas of th Und Stats can th xpctations thory b rjctd, on th basis of th corrlation statistic, at th 5% lvl of confidnc. Th rlativly low corrlation btwn actual and thortical sprads in th Und Stats might b takn as vidnc of rlativly larg dviations of long-trm intrst rats from lvls prdictd by th xpctations thory. It is intrsting to not that Hardouvlis (1994), in his study of tn-yar bond yilds in th G-7 countris, also rports a rlativly low corrlation btwn actual and thortical sprads in th Und Stats. 4 Th starting dat of th priod studid is dtrmind by th Japans thr-month rat, which is availabl only from th first quartr of 1975 (1975 Q1). Allowing for four lags in th VAR and th loss of on obsrvation du to diffrncing th short rat givs a starting dat for th stimation of 197 Q2. 5 Th Appndix dscribs in dtail th assumptions undrlying th Mont Carlo xprimnts and xplains how thy wr conductd. 5

12 Th othr standard VAR-basd spcification tst of th xpctations thory, th ratio of th standard dviation of th thortical long/short sprad to th standard dviation of th actual sprad, is also rportd in Tabl 1. In all of th countris studid xcpt Japan th ratio of standard dviations is significantly lss than uny. Significanc probabilis ar shown in parnthss blow th standard dviation ratios, and rprsnt th stimatd probabily of obtaining a valu of th standard dviation ratio lss than that rportd if th xpctations thory of th trm structur holds. On th basis of this spcification tst, and a 5% confidnc lvl, th xpctations thory of th trm structur is rjctd in vry country xcpt Japan. It is intrsting to not that th standard dviation ratio tst statistic allows th rjction of th xpctations thory in Japan at about th 2% confidnc lvl, vn though th ratio of standard dviations is almost uny. Th fact that a valu of uny of th standard dviation ratio lis in th lft tail of th distribution of ratios gnratd by Mont Carlo simulation suggsts that th stimatd cofficints of th VAR, from which forcasts of short-rat changs ar drivd, ar contaminatd wh substantial stimation rror. Estimation rror in th cofficints of th VAR would tnd to caus th ratio σ ( S ) / σ( S) to b gratr than uny in small sampls undr th xpctations thory, vn though in larg sampls th ratio would b clos to uny. Th rportd ratios of standard dviations suggst that, in vry country xcpt Japan, actual long/short sprads ar substantially mor volatil than th xpctations thory would prdict. This suggsts that non-ngligibl ε s ar an important sourc of bond yild volatily for most of th markts studid. Indd, th last row of Tabl 1 shows, for ach country, th standard dviation of th discrpancy btwn th actual and thortical sprad, σ ε ). For th countris for which th xpctations thory is statistically rjctd th Und Stats, Canada, th Und Kingdom and Grmany this standard dviation runs from about basis points (Grmany) to ovr 7 basis points (th Und Stats). ( 2. Sprad ovrraction and comovmnts of trm prmia btwn countris Givn th rlativ importanc of th discrpancis ( ε s) for th volatilis of long/short intrst rat sprads documntd in th prcding sction, an important qustion that ariss is how to charactris ths discrpancis. For instanc, should thy b viwd as wh nois dviations of long rats from lvls prdictd by th xpctations thory, or is a mor complicatd modl rquird? Ar th discrpancis corrlatd across markts? Prvious studis (Campbll and Shillr (1991) and Bkart, Hodrick and Marshall (1997)) hav also documntd important discrpancis btwn th small-sampl distributions of rgrssion tsts of th xpctations thory and th distributions implid by th rlvant asymptotic thory.

13 As Campbll and Shillr (1991) obsrv, th simplifying assumption that ε is orthogonal to S, as would b th cas if th ε s wr wh nois rror trms, implis that ( i (2.1) ρ = σ S )/ σ( S ) = 1/(1 + v ), whr v i is th ratio of th varianc of ε to th varianc of S. As shown in Tabl 1, for th majory of countris studid th corrlation cofficint substantially xcds th standard dviation ratio. This suggsts that th assumption that ε is orthogonal to S is not satisfid by th data. 2.1 Sprad ovrraction hypothsis An altrnativ hypothsis concrning th ε s is that thy ar gnratd by th sprad ovrraction hypothsis that Campbll and Shillr (1991) conclud roughly fs th US data. Th sprad ovrraction hypothsis can b givn formal contnt by assuming that th actual long/short sprad is a linar transformation of th thortical sprad (2.2) S βi + β1i = S, whr β i and β 1i ar paramtrs of th transformation. Th xpctations thory of th trm structur is nstd in quation (2.2) and obtains whn β i = and β 1 i = 1. In contrast, th sprad ovrraction hypothsis is givn by th class of modls whr β 1 i > 1. Undr th sprad ovrraction hypothsis ( β 1 i > 1 th actual long/short sprad to changs in th thortical sprad, is clar that whn 1 > 1 ), thr is a systmatic ovrraction of S. Rcalling that S = R r, β i th long/short sprad ovrracts to changs in xpctd futur short rats mbodid in R ; th long rat would chang by lss if th xpctations thory hld. In this cas, is asily shown that th discrpancy btwn th actual and thortical sprad in country i, ε, is posivly corrlatd wh th thortical sprad in country i. It is of intrst to not th implications of quation (2.2) for th valus of th statistics rportd in Tabl 1. Undr quation (2.2), th corrlation btwn th actual and thortical sprads will b uny providd only that β 1 >. Thus, th corrlation cofficint has limd statistical powr to dtct th dparturs from th xpctations thory modlld by quation (2.2). In contrast, undr (2.2), th ratio σ ( S ) / σ( S ) quals 1/ β 1, so that is possibl on th basis of th standard dviation ratio statistic to dtct failurs of th xpctations thory of th typ modlld by quation (2.2). As rportd in Tabl 1, th ratio of standard dviations is substantially lss than uny for vry country xcpt Japan. This is consistnt wh th sprad ovrraction hypothsis ( β 1 > 1 ) holding in th majory of countris studid. A dirct tst of th sprad ovrraction hypothsis can b conductd by stimating th paramtrs of quation (2.2). Ordinary last squars (OLS) stimats of quation (2.2) ar rportd in Tabl 2, and for vry country xcpt Japan β ˆ1 > 1. Th country that 7

14 shows th gratst dgr of sprad ovrraction is th Und Stats, th country for which th hypothsis was inially offrd as an xplanation for th apparnt failur of th xpctations thory of th trm structur. Nvrthlss, wh th xcption of Japan, th othr countris studid also display a substantial dgr of sprad ovrraction, spcially whn on rcalls that th variabl S is masurd wh rror, so that OLS stimats of th paramtr β 1 ar biasd towards zro. 7 Significanc probabilis, rportd in parnthss in Tabl 2, indicat that th vidnc in favour of th sprad ovrraction hypothsis in th Und Stats, Canada, th Und Kingdom and Grmany is statistically significant at a high lvl of confidnc. This implis that, in ths countris, th discrpancy btwn th actual and thortical sprad, ε, is posivly corrlatd wh th thortical sprad. Tabl 2 OLS stimats of quation (2.2) Und Stats Canada Und Kingdom Grmany Japan β β (.14) 1.5 (.18) 1.7 (.29) 1.2 (<.1).992 (.21) Not: For all countris xcpt th Und Stats, th stimation priod is 197 Q Q. For th Und Stats, th stimation priod is 1984 Q Q. Numbrs in parnthss ar significanc probabilis computd by Mont Carlo simulation. Th rportd significanc probabilis ar th fraction of 1, runs for which an stimat of β 1 gratr than that rportd in th tabl was obtaind. 2.2 Comovmnts of trm prmia btwn countris Th ovrraction of actual long/short intrst rat sprads to thir thortical countrparts has implications for th comovmnts of bond yilds btwn countris. In particular, undr quation (2.2) follows that (2.) Cov ε, ε ) = ( β 1) ( β 1) Cov( S, S ) ( jt 1i 1 j Thus, if th sprad ovrraction hypothsis holds for both countris i and j, that is, β 1 i > 1 and β 1 j > 1, thn th covarianc btwn th discrpancis ε and ε jt, which ar d-mand trm prmia, has th sam sign as th covarianc btwn th thortical sprads S and S jt. Rcall that thortical sprads ar, by quation (1.), dtrmind by xpctd changs in short rats. Thrfor, th intrcountry covariancs of thortical sprads dpnd upon cross-country jt 7 Rcall that S is formd from VAR-basd forcasts of changs in th thr-month rat of intrst. To th xtnt that th stimatd cofficints of th VAR ar subjct to sampling rror, this rror will b transmtd to th variabl S. 8

15 covariancs of xpctd changs in short rats. Tabl rports cross-country corrlations of thortical sprads. All of th corrlations ar posiv, which rflcts th tndncy of VAR-basd forcasts of short rat changs to b posivly corrlatd across countris. Tabl Cross-country corrlations of thortical sprads US Canada UK Grmany Japan Und Stats 1. Canada.4 1. Und Kingdom Grmany Japan Not: Th sampl priod is 1984 Q Q. Tabl 4 Cross-country corrlations of discrpancis (ε) US Canada UK Grmany Japan Und Stats 1. Canada Und Kingdom Grmany Japan Not: Th stimation priod is 1984 Q Q. Posiv intrcountry corrlation of thortical sprads has implications for th intrcountry corrlation of trm prmia. In particular, for groups of countris for which th sprad ovrraction hypothsis holds, trm prmia will b posivly corrlatd btwn countris. Tabl 4 rports cross-country corrlations of th discrpancis btwn actual and thortical sprads. Th discrpancis ar indd posivly corrlatd whin th group of countris for which th sprad ovrraction hypothsis holds th Und Stats, Canada, th Und Kingdom and Grmany. This is furthr vidnc of th xcss comovmnt of bond yilds documntd in Sutton (1997). 9

16 Conclusions This papr applis th Campbll-Shillr (1987) mthodology to a study of th joint bhaviour of a thr-month and a fiv-yar govrnmnt yild in th Und Stats, Canada, th Und Kingdom, Grmany and Japan. Th priod studid is for most countris th mid-197s to th third quartr of Th mpirical rsults allow th rjction of th xpctations thory of th trm structur at high lvls of statistical significanc in vry country xcpt Japan. Furthrmor, in vry country whr th xpctations thory fails, th failur of th thory is consistnt wh th sprad ovrraction hypothsis of Froot (1989) and Campbll and Shillr (1991). This implis that th dparturs of long rats from lvls prdictd by th xpctations thory in many major markts cannot b attributd to wh nois rror trms. Sprad ovrraction has implications for th comovmnts of bond yilds btwn countris. Bcaus xpctd changs in short-trm intrst rats tnd to b posivly corrlatd btwn countris, sprad ovrraction implis that th discrpancis btwn bond yilds and thir thortical countrparts undr th xpctations thory ar posivly corrlatd across markts. Thus, sprad ovrraction can b considrd to b part of th rason for th xcss comovmnt of bond yilds documntd in prvious rsarch. 1

17 Appndix: Mont Carlo xprimnts This appndix dscribs in dtail th assumptions undrlying th Mont Carlo simulations and xplains how thy wr conductd. Th short-trm (thr-month) intrst rat in country i, r, is assumd to follow th firstordr autorgrssiv procss (A.1) r = α i + α1i r 1 + η, whr η is an indpndnt (ovr tim), idntically distributd normal random variabl wh zro man. Tabl A.1 Estimats of quation (A.1) Und Stats Canada Und Kingdom Grmany Japan OLS stimats: α.77 α Bias-adjustd stimats: α.4 α Not: Th stimation priod is 1975 Q Q. Bias-adjustd stimats ar drivd from th OLS stimats and th bias adjustmnt formulas givn in Bkart, Hodrick and Marshall (1997). Th bias adjustmnt formulas assum that th uncondional man of th short rat procss xists. In th cas of Grmany, th bias-adjustd stimatd of α 1 is 1., implying a non-stationary short rat procss. For Grmany, th short rat is assumd to follow a random walk whout drift. Tabl A.1 rports OLS stimats of th paramtrs of quation (A.1). Th OLS stimats of α and α 1 shown in Tabl A.1 ar subjct to small-sampl bias. In particular, th OLS stimat of α 1 is subjct to downward bias. In a rcnt papr, Bkart, Hodrick and Marshall (1997) mphasis th importanc of corrcting for small-sampl bias whn valuating th statistical significanc of rgrssion tsts of th xpctations thory by Mont Carlo mthods. Tabl A.1 also rports biasadjustd stimats of α and α 1 which ar drivd from th OLS stimats and th bias adjustmnt formulas givn in Bkart, Hodrick and Marshall (1997). In th Mont Carlo simulations, th biasadjustd stimats of α and α 1 ar, for ach country, takn as paramtrs in quation (A.1). On thousand sris of artificial short rats wr gnratd for ach country according to (A.1), whr th standard dviation of η is, for ach country, st qual to th sampl standard 11

18 dviation ovr th priod 1975 Q Q. (Th valu of r in 1975 Q1 is takn as an inial condion.) Corrsponding to ach sris of artificial short rats, a sris of artificial fiv-yar bond yilds was constructd according to quation (1.1), whr xpctations of futur short rats wr assumd to b consistnt wh (A.1). A bivariat VAR (in th long/short sprad and th chang in th short rat) was ftd to ach pair of gnratd intrst rats. Th stimatd VAR was thn usd to gnrat xpctd short rat changs and a thortical long/short sprad consistnt wh ths xpctations. Th significanc probabilis rportd in Tabls 1 and 2 wr computd from ths sris. 12

19 Rfrncs Bkart, Grt, Robrt J. Hodrick and David A. Marshall (1997): On Biass in Tsts of th Expctations Hypothsis of th Trm Structur of Intrst Rats. Journal of Financial Economics, Vol. 44, pp Campbll, John Y. and Robrt J. Shillr (1984): A Simpl Account of th Bhavior of Long-Trm Intrst Rats. Amrican Economic Rviw, Vol. 74, pp Campbll, John Y. and Robrt J. Shillr (1987): Cointgration and Tsts of Prsnt Valu Modls. Journal of Polical Economy, Vol. 95, pp Campbll, John Y. and Robrt J. Shillr (1991): Yild Sprads and Intrst Rat Movmnts: A Bird s Ey Viw. Rviw of Economic Studis, Vol. 58, pp Fama, Eugn F. (1984): Th Information in th Trm Structur. Journal of Financial Economics, Vol. 1, pp Fama, Eugn F. and Robrt R. Bliss (1987): Th Information in Long-Matury Forward Rats. Amrican Economic Rviw, Vol. 77, pp Froot, Knnth A. (1989): Nw Hop for th Expctations Hypothsis of th Trm Structur of Intrst Rats. Journal of Financ, Vol. 44, pp Hardouvlis, Gikas A (1994): Th Trm Structur Sprad and Futur Changs in Long and Short Rats in th G7 Countris: Is Thr a Puzzl? Journal of Montary Economics, Vol., pp Shillr, Robrt J. (1979): Th Volatily of Long-Trm Intrst Rats and Expctations Modls of th Trm Structur. Journal of Polical Economy, Vol. 87, pp Shillr, Robrt J., John Y. Campbll and Krm L. Schonholtz (198): Forward Rats and Futur Policy: Intrprting th Trm Structur of Intrst Rats. Brookings Paprs on Economic Activy, Vol. 1, pp Sutton, Grgory D. (1997): Is Thr Excss Comovmnt of Bond Yilds Btwn Countris? BIS Working Paprs, No

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21 Rcnt BIS Working Paprs No. Tl Author 8 Octobr January March May Jun July July August Sptmbr Sptmbr Sptmbr Sptmbr Novmbr Novmbr January March Jun 1998 Intrnational agrmnts in th ara of banking and financ: accomplishmnts and outstanding issus Banking systm failurs in dvloping and transion countris: diagnosis and prdiction Montary policy oprating procdurs in industrial countris Th uro and Europan financial markts Masuring montary policy shocks in Franc, Grmany and Italy: th rol of th xchang rat Exchang rat rgims and th xpctations hypothsis of th trm structur Is thr xcss comovmnt of bond yilds btwn countris? A multi-country comparison of th linkags btwn inflation and xchang rat comptivnss Global asst allocation in fixd incom markts Financial asst prics and montary policy: thory and vidnc Som multi-country vidnc on th ffcts of ral xchang rats on output Why dos th yild curv prdict conomic activy? Disscting th vidnc for Grmany and th Und Stats Th uro and th dollar Forcast rrors and financial dvlopmnts Inflation and disinflation in Icland Exchang rat rgims and inflation and output in Sub- Saharan countris Th coming transformation of continntal Europan banking? William R. Wh Patrick Honohan Claudio E. V. Borio Robrt N. McCauly and William R. Wh Frank Smts Stfan Grlach and Frank Smts Grgory D. Sutton Stvn B. Kamin Srichandr Ramaswamy Frank Smts Stvn B. Kamin and Marc Klau Frank Smts and Kostas Tsatsaronis Robrt N. McCauly Pall S. Andrsn Pall S. Andrsn and Már Guðmundsson Marc Klau William R. Wh