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Do macro variables help forecast interest rates?

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Abstract

Some recent research has suggested that macroeconomic variables, such as output and inflation, can improve interest rate forecasts. However, the evidence for this puzzling result is based on unreliable statistical tests. A new simple method more reliably assesses which variables are useful for forecasting. The results from this method suggest that some of the published evidence on the predictive power of macroeconomic variables may be spurious, supporting the more traditional view that current interest rates contain all the relevant information for predicting future interest rates.

Suggested Citation

  • Michael D. Bauer & James D. Hamilton, 2016. "Do macro variables help forecast interest rates?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfel:00098
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    1. G. Elliott & C. Granger & A. Timmermann (ed.), 2013. "Handbook of Economic Forecasting," Handbook of Economic Forecasting, Elsevier, edition 1, volume 2, number 2.
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