Uncertainty on Monetary Policy and the Expectations Model of theTerm Structure of Interest Rates

In this paper we jointly estimate a forward-looking reaction function for the three-month rate alongwith a term structure relationship linking the six-month interest rates to current and expected future three-month rates. In our empirical model the response of the six-month interest rates to current and future three-month interest rates is allowed to depend on uncertainty on monetary policy. The expectations theory cannot be rejected in periods of low uncertainty on monetary policy.