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Long-term interest rate predictability: Exploring the usefulness of survey forecasts of growth and inflation

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  • Hamid Baghestani

Abstract

This study focuses on the consensus forecasts from the Survey of Professional Forecasters (SPF) for 1993–2017. These include the SPF forecasts of US 10-year Treasury rate (TBR), Moody’s Aaa corporate bond rate (Aaa), CPI inflation, and real GDP growth. We show that both SPF and random walk forecasts of TBR and Aaa generally fail to be orthogonal to changes in SPF inflation (but not growth) forecasts. Such findings point to the potential usefulness of SPF inflation forecasts in improving the accuracy of SPF and random walk forecasts of TBR and Aaa. Further results indicate that changes in SPF inflation forecasts accurately predict directional change in both TBR and Aaa at longer forecast horizons for 2008–2017 (but not for 1993–2007). These latter results raise the question of whether long-term interest rates have become easier to predict, which deserves subsequent research.

Suggested Citation

  • Hamid Baghestani, 2019. "Long-term interest rate predictability: Exploring the usefulness of survey forecasts of growth and inflation," Cogent Economics & Finance, Taylor & Francis Journals, vol. 7(1), pages 1582317-158, January.
    • Handle: RePEc:taf:oaefxx:v:7:y:2019:i:1:p:1582317
    DOI: 10.1080/23322039.2019.1582317
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    Cited by:

    1. Hamid Baghestani, 2022. "Mortgage rate predictability and consumer home-buying assessments," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 46(3), pages 593-603, July.
    2. Hamid Baghestani & Jorg Bley, 2020. "Do directional predictions of US gasoline prices reveal asymmetries?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 44(2), pages 348-360, April.

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