Expectations, Surprises and Treasury Bill Rates: 1960–82

Expectations, Surprises and Treasury Bill Rates: 1960–82

  • PATRIC H. HENDERSHOTT

Article first published online: 30th April 2012 DOI: 10.1111/j.1540-6261.1984.tb03657.x

Abstract


Changes in six‐month bill rates over semiannual periods in the 1960s and 1970s are successfully related to expected changes and to surprises. The latter include unanticipated changes in expected inflation, in the growth of industrial production and base money, and in inflation uncertainty. Estimation of the basic equation through the middle of 1983 does not suggest any change in structure. Moreover the equation “explains” 60 percent of the extraordinarily high level of real rates since late 1980, largely owing to an excess of unexpected net increases in anticipated inflation over actual increases.

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