Reconciling real interest parity and the expectations hypothesis

Brischetto, Andrea. (1997). Reconciling real interest parity and the expectations hypothesis Honours Thesis, Dept. of Economics, The University of Queensland.

       
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Author Brischetto, Andrea.
Thesis Title Reconciling real interest parity and the expectations hypothesis
School, Centre or Institute Dept. of Economics
Institution The University of Queensland
Publication date 1997
Thesis type Honours Thesis
Total pages 161
Language eng
Subjects 14 Economics
Formatted abstract
This thesis attempts to reconcile the theory of real interest parity and the expectations hypothesis. It is motivated by the lack of an open economy theory of the term structure in the context of globally integrated financial markets. Real interest parity proposes that real interest rates are equal across countries. The expectations hypothesis predicts that the same rate of return is earned whether a short-term or long-term security is held over a particular period. The simultaneous operation of real interest parity and the expectations hypothesis are empirically examined and a theoretical analysis of the possible nature of the interaction between these two theories is conducted. Of particular interest is how this interaction might affect the implications of these theories for monetary policy.

The general conclusion is that a number of problems arise when these theories are combined. In particular, the likelihood of a conflict between the interest rate outcomes predicted by the two theories is considered. While no firm conclusions are reached as to the exact nature of the interaction of these theories, the comprehensive theoretical analysis conducted lays the foundations for the future development of an integrated theory of real interest parity and the expectations hypothesis.


Document type: Thesis
Collection: UQ Theses (non-RHD) - UQ staff and students only
 
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Created: Thu, 18 Nov 2010, 15:37:07 EST by Muhammad Noman Ali on behalf of The University of Queensland Library