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Forecasting Changes in UK Interest Rates

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Author Info

  • Thanaset Chevapatrakul

    ()
    (Department of Economics, Loughborough University)

  • Tae-Hwan Kim

    ()
    (Deparment of Economics, University of Nottingham)

  • Paul Mizen

    ()
    (Department of Economics, University of Nottingham)

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 comittee 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 analyze 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.

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File URL: http://www.lboro.ac.uk/departments/ec/RePEc/lbo/lbowps/ThanasetJOF.pdf
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Bibliographic Info

Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2007_26.

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Date of creation: Nov 2007
Date of revision: Nov 2007
Handle: RePEc:lbo:lbowps:2007_26

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Postal: Loughborough, Leicestershire, LE11 3TU
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Fax: +44 (0) 1509 223910
Web page: http://www.lboro.ac.uk/departments/sbe/research/economics/index.html
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Keywords: Interest rates; monetary policy; Bank of England;

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References

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Citations

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Cited by:
  1. Paul Mizen & Serafeim Tsoukas, 2011. "Forecasting US bond default ratings allowing for previous and initial state dependence in an ordered probit model," Working Papers 2011_19, Business School - Economics, University of Glasgow.
  2. 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," CESifo Working Paper Series 2760, CESifo Group Munich.
  3. 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, vol. 34(2), pages 326-341.

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