Abstract
This paper extends previous work on the information content of the term structure of interest rates using a newly constructed dataset for the United States, Japan, Germany, Switzerland, France, Belgium and the Netherlands (1982–1991). Results significantly differ from Jorion and Mishkin (1991). Apparently, the relation between the term structure of interest rates and future inflation is highly period- and country-dependent. We provide new evidence that these results may be due to the inability of financial markets to accurately predict a term structure of inflation in combination with the conduct of monetary policy. This probably accounts for large variation in ex post real interest rate levels and the term structure of real interest rates. Consequently, it is unlikely that the term structure of nominal interest rates will serve as a good indicator of future inflationary developments.
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Gerard Opsteeg importantly contributed in gathering and organizing the data. Francois Nissen provided skillful assistance in the computational analysis. Helpful comments from Manfred Neumann, participants of the Konstanz Seminar on Monetary Theory and Monetary Policy 1993, and from two anonymous referees are acknowledged. Any remaining errors are ours alone.