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.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0410.
Date of creation: Nov 1979
Date of revision:
Publication status: published as Pesando, James E. "On Forecasting Interest Rates: An Efficient Markets Perspective." Journal of Monetary Economics, Vol. 8, No. 3, (November 1981), pp . 305-318.
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Other versions of this item:
- Pesando, James E., 1981. "On forecasting interest rates : An efficient markets perspective," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 305-318.
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