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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Monetary Economics.
Volume (Year): 8 (1981)
Issue (Month): 3 ()
Contact details of provider:
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.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Modigliani, Franco & Shiller, Robert J, 1973. "Inflation, Rational Expectations and the Term Structure of Interest Rates," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 40(157), pages 12-43, February.
- Frederic S. Mishkin, 1978. "Efficient-Markets Theory: Implications for Monetary Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 9(3), pages 707-752.
- McCulloch, J Huston, 1975. "An Estimate of the Liquidity Premium," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 83(1), pages 95-119, February.
- Pesando, James E, 1978. "On the Efficiency of the Bond Market: Some Canadian Evidence," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(6), pages 1057-76, December.
- Franco Modigliani & Richard Sutch, 1967. "Debt Management and the Term Structure of Interest Rates: An Empirical Analysis of Recent Experience," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 75, pages 569.
- Sargent, Thomas J, 1976. "A Classical Macroeconometric Model for the United States," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 84(2), pages 207-37, April.
- Brunner, Karl & Meltzer, Allan H., 1976. "The Phillips curve," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 1(1), pages 1-18, January.
- Masson, Paul R, 1978. "Structural Models of the Demand for Bonds and the Term Structure of Interest Rates," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 45(180), pages 363-77, November.
- McCallum, John S, 1975. "The Expected Holding Period Return, Uncertainty and the Term Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 30(2), pages 307-23, May.
- Obermaier, Robert, 2005. "Unternehmensbewertung, Basiszinssatz und Zinsstruktur: Kapitalmarktorientierte Bestimmung des risikolosen Basiszinssatzes bei nicht-flacher Zinsstruktur," University of Regensburg Working Papers in Business, Economics and Management Information Systems 408, University of Regensburg, Department of Economics.
- Chiang, Thomas C. & Chiang, Jeanette Jin, 1995. "Emperical analysis of short-term eurocurrency rates: Evidence from a transfer function error correction model," Journal of Economics and Business, Elsevier, vol. 47(4), pages 335-351, October.
- Baghestani, Hamid, 2009. "Forecasting in efficient bond markets: Do experts know better?," International Review of Economics & Finance, Elsevier, vol. 18(4), pages 624-630, October.
- Angelo Melino, 1986.
"The Term Structure of Interest Rates: Evidence and Theory,"
NBER Working Papers
1828, National Bureau of Economic Research, Inc.
- Melino, Angelo, 1988. " The Term Structure of Interest Rates: Evidence and Theory," Journal of Economic Surveys, Wiley Blackwell, vol. 2(4), pages 335-66.
- Pami Dua, 2008.
"Interest Rate Modeling and Forecasting in India,"
- Chortareas, Georgios & Jitmaneeroj, Boonlert & Wood, Andrew, 2012. "Forecast rationality and monetary policy frameworks: Evidence from UK interest rate forecasts," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(1), pages 209-231.
- Yvon Fauvel & Alain Paquet & Christian Zimmermann, 1999. "A Survey on Interest Rate Forecasting," Cahiers de recherche CREFE / CREFE Working Papers, CREFE, UniversitÃ© du QuÃ©bec Ã MontrÃ©al 87, CREFE, UniversitÃ© du QuÃ©bec Ã MontrÃ©al.
- 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).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.