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Testing the predictive power of New Zealand bank bill futures rates

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Abstract

The hypothesis that New Zealand 90-day bank bill futures rates are an unbiased predictor of 90-day bank bill rates is tested by applying the single-equation method of Stock and Watson (1993) to quarterly data from 1989 to 1997. The results do not reject the unbiasedness hypothesis for the one and two-quarter-ahead horizons tested. However, the estimated residuals are found to contain significant serial correlation in both cases, which suggests that some degree of information inefficiency might exist. The relative forecasting performance of futures rates against the random-walk is also investigated for weekly horizons up to 26 weeks. The results indicate that futures rates outperform the random-walk over all horizons tested, with the improvement statistically significant for all horizons greater than 1 week.

Suggested Citation

  • Leo Krippner, 1998. "Testing the predictive power of New Zealand bank bill futures rates," Reserve Bank of New Zealand Discussion Paper Series G98/8, Reserve Bank of New Zealand.
    • Handle: RePEc:nzb:nzbdps:1998/08
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    1. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
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    5. Cuthbertson, Keith, 1996. "The Expectations Hypothesis of the Term Structure: The UK Interbank Market," Economic Journal, Royal Economic Society, vol. 106(436), pages 578-592, May.
    6. Richard Deaves, 1996. "Forecasting Canadian Short-Term Interest Rates," Canadian Journal of Economics, Canadian Economics Association, vol. 29(3), pages 615-634, August.
    7. Ashley, R & Granger, C W J & Schmalensee, R, 1980. "Advertising and Aggregate Consumption: An Analysis of Causality," Econometrica, Econometric Society, vol. 48(5), pages 1149-1167, July.
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    Cited by:

    1. Aron Drew & Özer Karagedikli, 2007. "Some Benefits of Monetary-Policy Transparency in New Zealand," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 57(11-12), pages 521-539, December.
    2. Leo Krippner, 2002. "Extracting expectations of New Zealand's Official Cash Rate from the bank-risk yield curve," Reserve Bank of New Zealand Discussion Paper Series DP2002/01, Reserve Bank of New Zealand.

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    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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