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Forecasting changes in UK interest rates

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  • Tae-Hwan Kim

    (School of Economics, University of Nottingham, Nottingham, UK)

  • Paul Mizen

    (School of Economics, University of Nottingham, Nottingham, UK)

  • Thanaset Chevapatrakul

    (Department of Economics, Loughborough Unviersity, Loughborough, UK)

Abstract

Making accurate forecasts of the future direction of interest rates is a vital element when making economic decisions. The focus on central banks as they make decisions about the future direction of interest rates requires the forecaster to assess the likely outcome of committee decisions based on new information since the previous meeting. We characterize this process as a dynamic ordered probit process that uses information to decide between three possible outcomes for interest rates: an increase, decrease or no change. When we analyse the predictive ability of two information sets, we find that the approach has predictive ability both in-sample and out-of-sample that helps forecast the direction of future rates. Copyright © 2008 John wiley & Sons, Ltd.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.

Volume (Year): 27 (2008)
Issue (Month): 1 ()
Pages: 53-74

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Handle: RePEc:jof:jforec:v:27:y:2008:i:1:p:53-74

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966

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Cited by:
  1. Jan-Egbert Sturm & Jakob de Haan, 2009. "Does central bank communication really lead to better forecasts of policy decisions? New evidence based on a Taylor rule model for the ECB," KOF Working papers 09-236, KOF Swiss Economic Institute, ETH Zurich.
  2. Chevapatrakul, Thanaset & Kim, Tae-Hwan & Mizen, Paul, 2012. "Monetary information and monetary policy decisions: Evidence from the euroarea and the UK," Journal of Macroeconomics, Elsevier, Elsevier, vol. 34(2), pages 326-341.
  3. Paul Mizen & Serafeim Tsoukas, 2011. "Forecasting US bond default ratings allowing for previous and initial state dependence in an ordered probit model," Working Papers, Business School - Economics, University of Glasgow 2011_19, Business School - Economics, University of Glasgow.
  4. Bergmeir, Christoph & Costantini, Mauro & Benítez, José M., 2014. "On the usefulness of cross-validation for directional forecast evaluation," Computational Statistics & Data Analysis, Elsevier, Elsevier, vol. 76(C), pages 132-143.

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