FRB: The Term Structure of Interest Rates in the Onshore Markets of the United States, Germany, and Japan

International Finance Discussion Papers

The Term Structure of Interest Rates in the Onshore Markets of the United States, Germany, and Japan
Helen Popper
1990-382 (June 1990)

Abstract: This paper investigates term premia behavior in U.S., German, and Japanese markets. Onshore returns are evaluated in order to focus on the co-movement of the term premia across a set of potentially heterogeneous markets. The paper extends the work of Campbell and Clarida [1987], who find that the term premia within the Euromarket appear to move together. In keeping with their approach, Hansen and Hodrick's [1983] latent variable model is used. The model constrains expected returns, conditional on an information set, to be proportional to one another. These restrictions are not rejected for the markets examined here, implying that the term premia behave as if in a single market.

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