The expectations theory says that the long-term interest rate is the average of current and expected future short-term rates. For example, the two-year interest rate is the average of the current one-year rate and the one-year rate expected for next year, R 2 t = 1 2 R 1 t + E t R 1 t+1. (1) 2
CITATION STYLE
Fristedt, B., & Gray, L. (1997). Expectations: Theory. In A Modern Approach to Probability Theory (pp. 41–58). Birkhäuser Boston. https://doi.org/10.1007/978-1-4899-2837-5_4
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