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Historical Forecasting Of Interest Rate Mean And Volatility Of The United States: Is There A Role Of Uncertainty?

Author

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  • HOSSEIN HASSANI

    (Research Institute of Energy Management and Planning (RIEMP), University of Tehran, Tehran 1417466191, Iran)

  • MOHAMMAD REZA YEGANEGI

    (Research Institute of Energy Management and Planning (RIEMP), University of Tehran, Tehran 1417466191, Iran†Department of Accounting, Islamic Azad University, Central Tehran Branch, Tehran, Iran)

  • RANGAN GUPTA

    (#x2021;Department of Economics, University of Pretoria, Pretoria 0002, South Africa)

Abstract

Uncertainty is known to have negative impact on financial markets through its effects on investors’ decisions. In the wake of the “Great Recession”, quite a few recent studies have highlighted the role of uncertainty in predicting in-sample movements of interest rates. Since in-sample predictability does not guarantee out-of-sample forecasting gains, in this paper, we used historical daily and monthly data for the US to forecast mean and volatility of interest rate. The results show that changes in uncertainty measure movements fail to add any significant statistical gains to the forecast of interest rates for the US. In other words, policy makers in the US are not likely to improve their accuracy of future movements of the policy rate’s mean and volatility by incorporating information derived from changes in metrics of uncertainty.

Suggested Citation

  • Hossein Hassani & Mohammad Reza Yeganegi & Rangan Gupta, 2020. "Historical Forecasting Of Interest Rate Mean And Volatility Of The United States: Is There A Role Of Uncertainty?," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 15(04), pages 1-17, December.
    • Handle: RePEc:wsi:afexxx:v:15:y:2020:i:04:n:s2010495220500189
    DOI: 10.1142/S2010495220500189
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    References listed on IDEAS

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    1. Aye, Goodness & Gupta, Rangan & Hammoudeh, Shawkat & Kim, Won Joong, 2015. "Forecasting the price of gold using dynamic model averaging," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 257-266.
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    1. Ruipeng Liu & Mawuli Segnon & Rangan Gupta & Elie Bouri, 2021. "Conventional and Unconventional Monetary Policy Rate Uncertainty and Stock Market Volatility: A Forecasting Perspective," Working Papers 202178, University of Pretoria, Department of Economics.

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