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Forecasting Canadian Short-Term Interest Rates

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  • Richard Deaves

Abstract

The author investigates the forecasting performance of a number of simple prediction techniques for short-term interest rates. In particular, quarterly forecasts of Canadian three-month T-bill rates, from one to forty quarters in the future, are generated during 1963-92 using several time-series methods and market-based yield curve strategies. Comparison is made with the martingale and, for a shorter recent sample, with the predictions made by several economic forecasters. For the most part, utilization of the yield curve proved best, though it must be granted that no methodology was able to outperform the martingale for horizons up to a year.

Suggested Citation

  • Richard Deaves, 1996. "Forecasting Canadian Short-Term Interest Rates," Canadian Journal of Economics, Canadian Economics Association, vol. 29(3), pages 615-634, August.
    • Handle: RePEc:cje:issued:v:29:y:1996:i:3:p:615-34
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    2. Guidolin, Massimo & Thornton, Daniel L., 2018. "Predictions of short-term rates and the expectations hypothesis," International Journal of Forecasting, Elsevier, vol. 34(4), pages 636-664.
    3. Alfonso Novales & Emilio Domínguez, 2002. "Can forward rates be used to improve interest rate forecasts?"," Documentos de Trabajo del ICAE 0225, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    4. Jose Luis Fernandez-Serrano & M. Dolores Robles-Fernandez, 2008. "Time-series model forecasts and structural breaks: evidence from Spanish pre-EMU interest rates," Applied Economics, Taylor & Francis Journals, vol. 40(13), pages 1707-1721.
    5. Pami Dua & Nishita Raje & Satyananda Sahoo, 2004. "Interest Rate Modeling and Forecasting in India," Occasional papers 3, Centre for Development Economics, Delhi School of Economics.
    6. Ahrens, Ralf, 1999. "Improving market-based forecasts of short-term interest rates: Time-varying stationarity and the predictive content of switching regime-expectations," CFS Working Paper Series 1999/14, Center for Financial Studies (CFS).
    7. Leo Krippner, 1998. "Testing the predictive power of New Zealand bank bill futures rates," Reserve Bank of New Zealand Discussion Paper Series G98/8, Reserve Bank of New Zealand.
    8. Pami Dua & Nishita Raje & Satyananda Sahoo, 2008. "Forecasting Interest Rates in India," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 2(1), pages 1-41, March.
    9. John Galbraith & Greg Tkacz, 2007. "How Far Can Forecasting Models Forecast? Forecast Content Horizons for Some Important Macroeconomic Variables," Staff Working Papers 07-1, Bank of Canada.
    10. Yvon Fauvel & Alain Paquet & Christian Zimmermann, 1999. "A Survey on Interest Rate Forecasting," Cahiers de recherche CREFE / CREFE Working Papers 87, CREFE, Université du Québec à Montréal.

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