rates holds that a long-term rate equals the average of the expected values of short-term interest rates into the future, plus a term premium that is I(0). Specifically, let Rkt denote a k-period interest rate, let R1t denote Rk = g R1 + e,whereR1 istheforecastmadeatdatetofthe t k i=0 t+i t t t+i t a one-period interest rate, and let et denote an I(0) term premium. Then 1 k-1