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Forecasting Canadian Short-Term Interest Rates

  • Richard Deaves
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    The author investigates the forecasting performance of a number of simple prediction techniques for short-term interest rates. In particular, quarterly forecasts of Canadian three-month T-bill rates, from one to forty quarters in the future, are generated during 1963-92 using several time-series methods and market-based yield curve strategies. Comparison is made with the martingale and, for a shorter recent sample, with the predictions made by several economic forecasters. For the most part, utilization of the yield curve proved best, though it must be granted that no methodology was able to outperform the martingale for horizons up to a year.

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    Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

    Volume (Year): 29 (1996)
    Issue (Month): 3 (August)
    Pages: 615-34

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    Handle: RePEc:cje:issued:v:29:y:1996:i:3:p:615-34
    Contact details of provider: Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
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    1. Ashley, R & Granger, C W J & Schmalensee, R, 1980. "Advertising and Aggregate Consumption: An Analysis of Causality," Econometrica, Econometric Society, vol. 48(5), pages 1149-67, July.
    2. Gikas A. Hardouvelis, 1987. "The predictive power of the term structure during recent monetary regimes," Research Paper 8708, Federal Reserve Bank of New York.
    3. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
    4. Friedman, Benjamin M, 1979. "Interest Rate Expectations versus Forward Rates: Evidence from an Expectations Survey," Journal of Finance, American Finance Association, vol. 34(4), pages 965-73, September.
    5. Bradley, Michael G. & Lumpkin, Stephen A., 1992. "The Treasury Yield Curve as a Cointegrated System," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(03), pages 449-463, September.
    6. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    7. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    8. Fama, Eugene F., 1990. "Term-structure forecasts of interest rates, inflation and real returns," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 59-76, January.
    9. Hafer, R W & Hein, Scott E & MacDonald, S Scott, 1992. "Market and Survey Forecasts of the Three-Month Treasury-Bill Rate," The Journal of Business, University of Chicago Press, vol. 65(1), pages 123-38, January.
    10. Fama, Eugene F., 1984. "The information in the term structure," Journal of Financial Economics, Elsevier, vol. 13(4), pages 509-528, December.
    11. Hall, Anthony D & Anderson, Heather M & Granger, Clive W J, 1992. "A Cointegration Analysis of Treasury Bill Yields," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 116-26, February.
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