Advanced Search
MyIDEAS: Login

Interest Rate Forecasts: A Pathology

Contents:

Author Info

  • Wen Bin Lim
  • Charles Goodhart

    ()

Registered author(s):

    Abstract

    This is the first of three prospective papers examining how well forecasters can predict the future time path of short-term interest rates. Most prior work has been done using US data; in this exercise we use forecasts made for New Zealand (NZ) by the Reserve Bank of New Zealand (RBNZ), and those derived from money market yield curves in the UK. In this first exercise we broadly replicate recent US findings for NZ and UK, to show that such forecasts in NZ and UK have been excellent for the immediate forthcoming quarter, reasonable for the next quarter and useless thereafter.�Moreover, when ex post errors are assessed depending on whether interest rates have been upwards, or downwards, trending, they are shown to have been biased and, apparently, inefficient. In the second paper we shall examine whether (NZ and UK) forecasts for inflation exhibit the same syndromes, and whether errors in inflation forecasts can help to explain errors in interest rate forecasts. In the third paper we shall set out an hypothesis to explain those findings, and examine whether the apparent ex post forecast inefficiencies may still be consistent with ex ante forecastefficiency.�Even if the forecasts may be ex ante efficient, their negligible ex post forecasting ability suggests that, beyond a six months’ horizon from the forecast date, they would be better replaced by a simple ‘no-change thereafter’ assumption.

    Download Info

    If 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.
    File URL: http://www2.lse.ac.uk/fmg/workingPapers/discussionPapers/fmgdps/dp612.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Financial Markets Group in its series FMG Discussion Papers with number dp612.

    as in new window
    Length:
    Date of creation: Jun 2008
    Date of revision:
    Handle: RePEc:fmg:fmgdps:dp612

    Contact details of provider:
    Web page: http://www2.lse.ac.uk/fmg/

    Related research

    Keywords:

    This paper has been announced in the following NEP Reports:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Daniel L. Thornton, 2009. "How did we get to inflation targeting and where do we go now? a perspective from the U.S. experience," Working Papers 2009-038, Federal Reserve Bank of St. Louis.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:fmg:fmgdps:dp612

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (The FMG Administration).

    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.