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Forecasting changes in UK interest rates

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  • Tae-Hwan Kim
  • Paul Mizen
  • Alan Thanaset

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 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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Bibliographic Info

Paper provided by University of Nottingham, Granger Centre for Time Series Econometrics in its series Discussion Papers with number 06/06.

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Date of creation: Nov 2006
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Handle: RePEc:not:notgts:06/06

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Web page: http://www.nottingham.ac.uk/economics/grangercentre/
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Cited by:
  1. Mizen, Paul & Tsoukas, Serafeim, 2011. "Forecasting US bond default ratings allowing for previous and initial state dependence in an ordered probit model," SIRE Discussion Papers 2011-69, Scottish Institute for Research in Economics (SIRE).
  2. Jan-Egbert Sturm & Jakob Haan, 2011. "Does central bank communication really lead to better forecasts of policy decisions? New evidence based on a Taylor rule model for the ECB," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 147(1), pages 41-58, April.
  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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