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Forecasting Changes in UK Interest Rates

Listed author(s):
  • Thanaset Chevapatrakul

    ()

    (Department of Economics, Loughborough University)

  • Tae-Hwan Kim

    ()

    (Deparment of Economics, University of Nottingham)

  • Paul Mizen

    ()

    (Department of Economics, University of Nottingham)

Making accurate forecasts of the future direction of interest rates is a vital element when making economic decisions. The focus on central banks as they make decisions about the future direction of interest rates requires the forecaster to assess the likely outcome of comittee decisions based on new information since the previous meeting. We characterize this process as a dynamic ordered probit process that uses information to decide between three possible outcomes for interest rates: an increase, decrease or no-change. When we analyze the predictive ability of two information sets, we find that the approach has predictive ability both in-sample and out-of-sample that helps forecast the direction of future rates.

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File URL: http://www.lboro.ac.uk/departments/ec/RePEc/lbo/lbowps/ThanasetJOF.pdf
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Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2007_26.

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Date of creation: Nov 2007
Date of revision: Nov 2007
Handle: RePEc:lbo:lbowps:2007_26
Contact details of provider: Postal:
Loughborough, Leicestershire, LE11 3TU

Phone: +44 (0) 1509 222701
Fax: +44 (0) 1509 223910
Web page: http://www.lboro.ac.uk/departments/sbe/research/economics/index.html

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