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Uncertainty and dispersion in professional interest rate forecasts: International evidence and theory

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  • Cukierman, Alex
  • Lustenberger, Thomas

Abstract

We examine the cross-country relationships between measures of forecast uncertainty, forecast dispersion across individual forecasters and the variabilities of short-term interest rates and long-term yields. The main findings are: (i) Forecast uncertainty and forecast dispersion are positively and significantly related across countries for both short-term interest rates and long-term yields. (ii) A positive, albeit weaker, relation is found between forecast uncertainty and interest rate variability. (iii) Forecast dispersion of short-term interest rates and rates' variability are also positively associated. The evidence is followed by a Bayesian learning model that discusses conditions under which the results above are implied by theory.

Suggested Citation

  • Cukierman, Alex & Lustenberger, Thomas, 2020. "Uncertainty and dispersion in professional interest rate forecasts: International evidence and theory," CEPR Discussion Papers 15039, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:15039
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    References listed on IDEAS

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    1. Cukierman, Alex & Wachtel, Paul, 1979. "Differential Inflationary Expectations and the Variability of the Rate of Inflation: Theory and Evidence," American Economic Review, American Economic Association, vol. 69(4), pages 595-609, September.
    2. Sébastien Fries & Jean‐Stéphane Mésonnier & Sarah Mouabbi & Jean‐Paul Renne, 2018. "National natural rates of interest and the single monetary policy in the euro area," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 33(6), pages 763-779, September.
    3. Charles F. Manski, 2018. "Survey Measurement of Probabilistic Macroeconomic Expectations: Progress and Promise," NBER Macroeconomics Annual, University of Chicago Press, vol. 32(1), pages 411-471.
    4. Cukierman, Alex & Wachtel, Paul, 1982. "Inflationary Expectations: Reply and Further Thoughts on Inflation Uncertainty," American Economic Review, American Economic Association, vol. 72(3), pages 508-512, June.
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    Keywords

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    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G0 - Financial Economics - - General

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