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Forecast rationality and monetary policy frameworks: Evidence from UK interest rate forecasts

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  • Chortareas, Georgios
  • Jitmaneeroj, Boonlert
  • Wood, Andrew

Abstract

We find evidence of heterogeneity and irrationality among professional forecasts for three-month inter-bank rates and ten-year gilt yields at both short and long forecast horizons over the period 1989–2006. The majority of biased forecasts overestimate the future spot rate, consistent with slow adjustment to the declining trend in inflation and interest rates. Furthermore, we produce evidence indicating that both monetary policy actions and elements of communication policy have information content regarding the rationality of forecasts. Changes in official bank rates and disagreement among the Monetary Policy Committee influence the rationality of forecasts. The publication of inflation reports has no effect.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

Volume (Year): 22 (2012)
Issue (Month): 1 ()
Pages: 209-231

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Handle: RePEc:eee:intfin:v:22:y:2012:i:1:p:209-231

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Web page: http://www.elsevier.com/locate/intfin

Related research

Keywords: Rational Expectations; Heterogeneity; Survey forecasts; Term structure; Monetary policy frameworks;

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References

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Cited by:
  1. Ehrmann, M. & Eijffinger, S.C.W. & Fratzcher, M., 2010. "The Role of Central Bank Transparency for Guiding Private Sector Forecasts," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3763052, Tilburg University.
  2. Chortareas, Georgios & Noikokyris, Emmanouil, 2014. "Monetary policy and stock returns under the MPC and inflation targeting," International Review of Financial Analysis, Elsevier, vol. 31(C), pages 109-116.
  3. Frederik Kunze & Mario Gruppe, 2014. "Performance of Survey Forecasts by Professional Analysts: Did the European Debt Crisis Make it Harder or Perhaps Even Easier?," Social Sciences, MDPI, Open Access Journal, vol. 3(1), pages 128-139, February.

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