**structure**of the Shanghai Stock Exchange bond repurchase rate. Unlike the results of the previous studies, this article uses GMM method to overcome the bias of domestic scholars in the empirical study of the expected theoretical estimates. This paper does not support the expectations theory assume that the term premium is constant, but the time-varying term premium is introduced into the test model, the empirical results support the expectations theory. But the term premium and the spot rate spreads only partially explain future changes in short-term interest rates, the predicted effect is poor, the need for further analysis of possible influencing factors of liquidity, investor risk appetite, to increase in market interest rates change prediction accuracy.

**Keywords:**the term structure of interest rate expectations theory, bond repurchase

**Introduction**

Regulation of financial markets, the attention of the term structure of interest rates increasing number, which is mainly determined by several factors: First, foreign scholars a large number of empirical studies have shown that the use of a series of economic indicators, the slope of the term structure of interest rates for the economy future period changes predict a downward sloping term structure is often accompanied by the slow-down in economic growth or even recession in the future, such as the the Estrella and Hardouvelis (1991) study shows that Bernanke, (1990), Harvey (1991) Kamara (1997) and Gerlach (1997) on the relevance of financial markets and economic development in developed countries has been similar results; Secondly, the slope of the term structure of future changes in inflation forecast, Mishikin (1991), Jorion and Mishkin (1991) and Gerlach (1997) studies have proved this point, that is, an upward-sloping term structure often means that the expected rate of inflation rose; Finally, for monetary policy makers, the term structure of interest rates contains market participants' expectations of future short-term interest rate movements. It is worth noting that the economic theory suggests that long-term interest rates by the expected impact of future short-term interest rates, but the impact of other factors on the term structure is not to be ignored. For example, estimates of changes in market liquidity and market participants to make a commitment of financial products hold different maturity risk, will affect the term structure of interest rates. If the impact of these factors is time-varying, makes the interpretation of the term structure is more complex.

The traditional theory of the term structure of expected that the duration of the risk premium is not changing with time, and the long-term interest rates only by the expected future changes in short-term interest rates decision. Domestic scholars, Tang Qiming Gao Xiang (2002) and Shi Min (2005) found that under conditions of constant term premium, the term structure of China's interest rates expected before the Asian financial crisis in line with the traditional theory, However, during the ensuing period sample expectations theory can not be given full support. This article by September 1, 1997 - 31 December 2006, weekly data on China's

**exchange**bond repo market, empirical research, trying to discover after the Asian financial crisis, China's interest rate term structure to the extent to explain the changes in short-term interest rates in the future. The difference is that before the research results of domestic scholars, the article first refusal period term risk premium for the original assumption of constant expectations theory, based on the introduction of time-varying risk premium GMM estimation method of the expected theoretical Retesting of future short-term interest rate changes have a significant impact, and Wald test period time-varying risk premium under the conditions of the future changes in short-term interest rates and the interest rates of different maturities completely positive correlation.

This paper is structured as follows: a brief description of the second part of the traditional expectations model of the term structure; Part III of the seven days, 14 days, 28 days, 91 days and 182 days Exchange bond repurchase rate and term interest rates relative to the 7-day interest rate spreads preliminary statistical analysis, empirical research by the the GMM method on the data of the sample period, found that the theory does not support the expected term premium is constant, but coupled with time-varying period premium Shique can not refuse the expected theory; conclude that the time-varying risk premium may play a very important role in interest rate expectations theory test, and the change in the risk premium, the exchange bond repurchase rate in line with expectations theory.

**Expected theoretical models and GMM estimates**

**One the expected theoretical models of the term structure**

Expectations theory of the term structure of the expected return of the investment N is equal to the expected return to invest in a series of spot rates in the future with a deadline risk premium, and the premium does not change over time. R

^{ (N) }

_{ t }N of the spot rate, the expected theoretical formula can be expressed as:

(1)

Where, ¦¨

^{ (N) }the deadline risk premium, lowercase letters that continuous compounding (r

^{ (N) }

_{ t }= ln (1 R

^{ (N) }

_{ t })), and define ¦È

^{ (N) }= ln¦¨

^{ (N) }, can get:

(2)

Both sides of the formula (2) subtracting r

^{ (1) }

_{ t }and analyzed, resulting in:

(3)

(3) brief economic significance to explain, consider the simplest case N = 2, this time:

(4)

Assumes that the duration of the risk premium to 0, the formula (4) a spot rate of the expected change in E

_{ t }the r

^{ (1) }

_{ t 1 }-r

^{ (1) }interest rate differential r

^{ (2) }

_{ t }-r

^{ (1 of r ) }

_{ t }linear relationship. Therefore, if the expected short-term interest rates rise (fall), the term structure updip, downdip. At the same time, (4) express the importance of the term structure to forecast future inflation and economic activity. Assume that the central bank will raise interest rates to curb inflation and thus lower economic growth, market participants are convinced that the inflation rate will rise, then they will think that the central bank will raise interest rates in the near future. According to the formula (4), this means that the longer period (here with respect to the short term, this article refers to the 7-day exchange bond repurchase rate) spot rate has started to rise in the current period. If market participants view the average estimate of economic growth is correct, we will see interest rates dipping in a curve in the current period, along with higher spot rate in the next period and a lower rate of economic growth .

If expectations are rational, then define: the , independent and identically distributed, then (3 ) can be written as:

(5)

It can be expected regression equations of the theory test:

; (6)

V

^{ t (N) }N-1 order moving average error, so this article using the generalized method of moments estimation of regression testing avoid before domestic scholars caused during the analysis Estimated bias. Expectations theory should meet: ¦Á

^{ (N) }=-¦È

^{ (N) }and ¦Â

^{ (N) }= 1.

**Two generalized method of moments (GMM method is estimated)**

Hansen GMM method in 1982 to solve a large class of econometric model estimation and testing problems. The idea of ??this approach is the sample moment conditions instead of the model of the moment conditions, and thus the estimated value of the parameters on the use of a sample moments weighted quadratic minimization derived. Expressed as: a measurement model,

Y

_{ t }= a BX

_{ t }U

_{ t }, t = 1, ..., T (7)

The Y-

_{ t }X

_{ t }and U

_{ t }N-dimensional vector, set ¦È is an econometric model of the q-dimensional vector of model parameters, U The The

_{ t }(¦È) is the N-dimensional vector model of interference term Z

_{ t }is the L-dimensional vector, instrumental variable, usually contains a constant, X

_{ t }t in the past and its past values ??and Y

_{ value. Thus, the moment conditions of the equation (7) is written as: (8)Where ¦¨ is the Kronecker multiplication sign, it makes the f t become a NL dimensional vector matrix function. The the set g t f ?? t sample mean: the , then to get the estimated values ??of the parameters, as long as the find ¦È, so (9) content_end(); bdshare_big(); gg728X90_6(); }

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