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Interest Rate and Exchange Rate Forecasting in the Czech Republic: Do Analysts Know Better than a Random Walk?

Author

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  • Hamid Baghestani

    (Department of Economics, American University of Sharjah, Sharjah, UAE)

  • Liliana Danila

    (Department of Economics, American University of Sharjah, Sharjah, UAE)

Abstract

The Czech National Bank (CNB) conducts a monthly survey to collect domestic and foreign analysts’ forecasts of several economic and financial variables. Among these are the 2-week repo rate (which is the monetary policy interest rate set by the CNB), the 1-year Prague interbank offer rate and the CZK/EUR exchange rate. We ask whether the one- and twelve-month-ahead analysts’ forecasts of these indicators are accurate for 2005–2012. Our findings indicate that the one-month-ahead forecast of the repo rate and the twelve-month-ahead forecast of the exchange rate made by the domestic analysts are free of systematic bias, superior to the random walk and directionally accurate. The same is true for the one-month-ahead foreign analysts’ forecasts of the repo rate and the exchange rate. Unlike the domestic analysts’ forecasts, however, the foreign analysts’ forecasts are not efficient.

Suggested Citation

  • Hamid Baghestani & Liliana Danila, 2014. "Interest Rate and Exchange Rate Forecasting in the Czech Republic: Do Analysts Know Better than a Random Walk?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 64(4), pages 282-295, September.
    • Handle: RePEc:fau:fauart:v:64:y:2014:i:4:p:282-295
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    More about this item

    Keywords

    monetary policy; forecast evaluation; directional accuracy;
    All these keywords.

    JEL classification:

    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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