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

Listed author(s):
  • 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.

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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 47 (2015)
Issue (Month): 2 (January)
Pages: 113-122

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Handle: RePEc:taf:applec:v:47:y:2015:i:2:p:113-122
DOI: 10.1080/00036846.2014.959656
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