On forecasting interest rates : An efficient markets perspective
AbstractThis paper reviews, from an applied forecasting perspective, the properties of short- and long-term interest rates in an efficient market. The paper emphasizes that efficient markets do not preclude economic agents from successfully forecasting movements in short-term interest rates. For brief forecast intervals, however, ex ante changes in long-term rates are sufficiently close to zero that economic agents are not likely to improve upon the no-change prediction of the martingale model. Economic agents, in effect, are not likely to succeed in forecasting short-term movements in long-term interest rates. An analysis of three sets of Canadian interest rate forecasts provides results which are consistent with the theoretical discussion, Further, these results parallel those obtained in recent studies of recorded forecasts in the United States, although the authors of these latter studies apparently failed to appreciate the nature of their findings.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Monetary Economics.
Volume (Year): 8 (1981)
Issue (Month): 3 ()
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Web page: http://www.elsevier.com/locate/inca/505566
Other versions of this item:
- James E. Pesando, 1979. "On Forecasting Interest Rates: An Efficient Markets Perspective," NBER Working Papers 0410, National Bureau of Economic Research, Inc.
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