The name is absent



higher in the threshold model than in the single equation model; in addition, R2 is also higher in
each sub-regime than in the single regime.

The advantages of examining the EH in a multiple regime framework are evident. The estimated
slope coefficient gets significantly closer to
one in both regimes when the threshold variable is the
term premium. When the absolute values of the term premium discriminate regimes, at short and
medium horizons (
n = 36, 24, 12, 6) the slope coefficient is statistically significant only in the
regime characterized by moderate uncertainty; while, regime 2 estimates of the slope turn out to be
not significant. Evidence thus highlights a clear asymmetric effect in the empirical analysis of the
expectations theory.

These results can also be interpreted consistently with the hypothesis that interest rate
unpredictability affects the empirical corroboration of the EH (Mankiw and Miron, 1986).
Separating regimes on the basis of the term premium allows investors to identify two distinct states
of the world, each characterized by a specific level of uncertainty; in particular, in both states the
range of values assumed by the term premium is bounded and term premia volatility limited (Table
8). Hence, the investors’ forecast ability improves in both regimes, since in every regime the
variability of term premia is lower than in the single regime. This is true only when regimes are
determined by the level of term premia though (central column of Table 6). However, this no longer
holds when the absolute level of term premia drives the regime switching; as pointed out before, for
medium-short maturities only below the estimated threshold the slope coefficient is significant, i.e.
when prediction errors (
tptn,m) are low in absolute value.

In Figure 7 we plot the estimated slope coefficients β against maturity together with the 95%
confidence interval bands. In left part of Figure 7 we report the linear model
β estimates; while in
the second and third columns there are the plots of the slope coefficients in the first and second
regime respectively. The second and the third diagrams in the top panel report the regime one and
two
β estimates obtained in the threshold model when the term premium is the threshold variable.
In the bottom part of Figure 7 the second and the third diagrams plots regime one and two
β
estimates obtained when the threshold variable is the absolute value of the term premium. In the
single regime model at the very short end the yield spread does not have any predictive power21;
while in the two-regime framework the term structure appears to be informative about future

21 Rudebusch (1995) documents significant predictive power of the spread at very short horizons, i.e. lower than two
months. Our analysis is not comparable with his study since we do not consider maturities shorter than 3 months;
moreover, data used in this paper have different frequency.

20



More intriguing information

1. Empirically Analyzing the Impacts of U.S. Export Credit Programs on U.S. Agricultural Export Competitiveness
2. The name is absent
3. I nnovative Surgical Technique in the Management of Vallecular Cyst
4. Licensing Schemes in Endogenous Entry
5. Placenta ingestion by rats enhances y- and n-opioid antinociception, but suppresses A-opioid antinociception
6. Does adult education at upper secondary level influence annual wage earnings?
7. FASTER TRAINING IN NONLINEAR ICA USING MISEP
8. Credit Market Competition and Capital Regulation
9. Density Estimation and Combination under Model Ambiguity
10. Female Empowerment: Impact of a Commitment Savings Product in the Philippines
11. Quelles politiques de développement durable au Mali et à Madagascar ?
12. Evolving robust and specialized car racing skills
13. Social Balance Theory
14. Effects of red light and loud noise on the rate at which monkeys sample the sensory environment
15. The name is absent
16. EMU's Decentralized System of Fiscal Policy
17. The name is absent
18. The name is absent
19. The name is absent
20. The name is absent