Uncertainty on monetary policy and the expectations model of the term structure of interest rates

In this paper we jointly estimate a forward-looking reaction function for t he 3-month rate along with a term structure relationship linking the 6-mont h interest rates to current and expected future 3-month rates. In our empir ical model, the response of the 6-month interest rates to current and futur e 3-month interest rates is allowed to depend on uncertainty on monetary po licy. The expectations theory cannot be rejected in periods of low uncertai nty on monetary policy. (C) 2001 Elsevier Science BN. All rights reserved.