Abstract
The implicit interest rates embodied in forward premiums of different maturity times are modeled as an unrestricted vector autoregression. Under rational expectations the term structure of these forward premia can be conditioned on different sets of information at different time periods. The various parameter restrictions implied by these hypotheses are tested by means of Wald and likelihood ratio test statistics. The rational expectations model is rejected for all three currencies considered when conditioned on current and past sets of information.
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