In this paper we develop on the VAR framework, originally proposed by Campbell and
Shiller (J. Political Econom 95 (1987) 1062) to evaluate the Expectations Theory, along
three dimensions: the use of a testing method based on a real-time procedure, the
measurement of the risk premium, the specification of the implicit monetary policy maker's
reaction function. We use financial factors and macroeconomic information to construct a test
of the theory based on simulating investors' effort to use the model in 'real-time'to forecast …

In this paper we concentrate on the hypothesis that the empirical rejections of the
Expectations Theory (ET) of the term structure of interest rates can be caused by improper
modelling of expectations. Our starting point is an interesting anomaly found by Campbell-
Shiller (1987), when by taking a VAR approach they abandon limited information approach
to test the ET, in which realized returns are taken as a proxy for expected returns. We use
financial factors and macroeconomic information to construct a test of the theory based on …