Federal Funds Rate Prediction
AbstractWe examine the forecasting performance of a range of time-series models of the daily US effective federal funds (FF) rate recently proposed in the literature. We find that: (i) most of the models and predictor variables considered produce satisfactory one-day-ahead forecasts of the FF rate; (ii) the best forecasting model is a simple univariate model where the future FF rate is forecast using the current difference between the FF rate and its target; (iii) combining the forecasts from various models generally yields modest improvements on the best performing model. These results have a natural interpretation and clear policy implications.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4587.
Date of creation: Sep 2004
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Other versions of this item:
- Giorgio Valente & Daniel Thornton & Lucio Sarno, 2004. "Federal Funds Rate Prediction," Working Papers wp04-12, Warwick Business School, Finance Group.
- Sarno, Lucio & Daniel l Thornton & Giorgio Valente, 2003. "Federal Funds Rate Prediction," Royal Economic Society Annual Conference 2003 183, Royal Economic Society.
- Lucio Sarno & Daniel L. Thornton & Giorgio Valente, 2004. "Federal funds rate prediction," Working Papers 2002-005, Federal Reserve Bank of St. Louis.
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-02-13 (All new papers)
- NEP-CBA-2005-02-13 (Central Banking)
- NEP-ECM-2005-02-13 (Econometrics)
- NEP-MAC-2005-02-13 (Macroeconomics)
- NEP-MON-2005-02-13 (Monetary Economics)
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