Maria Blangiewicz , Paweł Miłobędzki

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We use a three-variable VAR including the yield spread, the change in the short rate and the excess holding period yield to test for the validity of the rational expectations hypothesis (REH) at the Polish interbank market. In doing so we utilize the set of monthly sampled WIBORs (Warsaw Interbank Offered Rates) for maturities of 1, 3, 6, 9 and 12 months from the period January 1999-December 2007. Although the yield spread Granger-causes future changes in the short rate for all maturities the other testing results are somewhat ambiguous. We find the restrictions set on the VAR that the one-period excess holding period return is not time varying should be rejected for all maturities. So should be the restrictions stating the actual spread equals the theoretical spread, except for 12 month WIBOR. Nevertheless, the estimates of conventional VAR metrics such that correlation coefficients between the actual and the theoretical spread and their variance ratios to some extent support the REH in its pure form (PREH). The first are all very close to unity and the latter are less than two standard deviations from unity for 3 month maturity. The conclusions in favour of the PREH for 9 and 12 month maturities are reached upon the bootstrapping experiment in which we have estimated the 95 per cent confidence intervals for the variance ratios. The estimates of the other VAR metrics suggest that a relatively large piece of variation in the unexpected return is due to news about future short rates and not due to news about the future average term premium.


term structure of interest rates, rational expectations hypothesis, time-varying term premia, VAR, Polish interbank market


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