The Expectation Theory of the Term Structure of Interest Rates in Russia

If the Russian market can be adequately described by the expectations theory, it means that the current interest rates contain information about future interest rates. This paper studies the term structure of interest rates in Russia and tests the expectations theory. In other words, it tests the hypothesis that the interest rate maturity n at the current moment of time is equal to a constant and the average of the current and future interest rates with maturity m (where n> m) until n-m=(k-1)m moment in the future. At the same time the sum of coefficients of the interest rates with maturity m equals 1. As for the constant, it reflects a premium for maturity, the expected additional revenue for investing in the rate with long-term maturity n instead of a series of short-term rates with maturity m. In line with expectations theory it is assumed that the constant may vary depending on the maturity of n and m, but it does not vary in time. In this paper was shown that the expectations theory of the Russian market reject, and for the better description of the term structure of interest rates in Russia it was also included some macro variables into the model and it significantly improved the model.