Term structure models and many descriptions of the transmission of monetary policy rest on the empirical relevance of the expectations hypothesis. Small differences in the perceived policy reaction function in VAR models of agent expectations strongly influence the relevance in the transmission...

It is tempting to interpret empirical evidence in a number of recent studies as suggesting that term structure spreads help predict future inflation over moderate horizons of 3 to 5 years. This paper argues that common measures of the predictive power of the term structure spread for future...