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Does the euro area forward rate provide accurate forecasts of the short rate?

Listed author(s):
  • Galvao, Ana Beatriz
  • Costa, Sonia

The forward rate can deliver accurate forecasts of euro area short-term interest rates, depending on the time period. During periods of macroeconomic uncertainty, forecasts obtained from a model of yield and macro factors are more accurate than forward-based forecasts. We provide evidence that a time-varying forward premium explains the variation in the forecasting performance. We develop a method for computing forward premium confidence intervals to identify ex-ante periods during which forward-based forecasts are inaccurate.

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File URL: http://www.sciencedirect.com/science/article/pii/S0169207012001082
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Article provided by Elsevier in its journal International Journal of Forecasting.

Volume (Year): 29 (2013)
Issue (Month): 1 ()
Pages: 131-141

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Handle: RePEc:eee:intfor:v:29:y:2013:i:1:p:131-141
DOI: 10.1016/j.ijforecast.2012.07.003
Contact details of provider: Web page: http://www.elsevier.com/locate/ijforecast

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