In this paper I examine the time-varying expected term premium argument for the failure of the expectations hypothesis of the term structure of U.S. interest rates. Using an unobserved components model to estimate expected term premiums from March 1951 to January 1991, I find considerable...

In this paper, the structural time series approach is used to explain the relationship between short-term and forward U.S. interest rates and to decompose the rejection of the joint hypothesis of rational expectations and constant (or zero) expected term premiums, into systematic expectation...