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On the accuracy of Blue Chip forecasts of interest rates and country risk premiums


  • Hamid Baghestani
  • Mohammad Arzaghi
  • Ilker Kaya


We examine the accuracy of Blue Chip forecasts of short- and long-term interest rates and country risk premiums for the Eurozone and six other industrial countries for 1999-2008. In so doing, we utilize comparable random walk forecasts as benchmarks. Consistent with the efficient market hypothesis, the long-term interest rate forecasts fail to outperform the random walk. Our findings on the accuracy of short-term interest rate forecasts are, however, mixed. Further results reveal that Blue Chip is more (less) accurate in predicting country risk premiums associated with short-term (long-term) interest rates. Such evidence is reasonable since the short-term country risk premiums contain only the perceived default risk, while the long-term risk premiums, in addition, can contain the perceived inflation and exchange rate differentials.

Suggested Citation

  • Hamid Baghestani & Mohammad Arzaghi & Ilker Kaya, 2015. "On the accuracy of Blue Chip forecasts of interest rates and country risk premiums," Applied Economics, Taylor & Francis Journals, vol. 47(2), pages 113-122, January.
  • Handle: RePEc:taf:applec:v:47:y:2015:i:2:p:113-122
    DOI: 10.1080/00036846.2014.959656

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    Cited by:

    1. Kunze, Frederik, 2017. "Predicting exchange rates in Asia: New insights on the accuracy of survey forecasts," Center for European, Governance and Economic Development Research Discussion Papers 326, University of Goettingen, Department of Economics.

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