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Testing the predictive power of New Zealand bank bill futures rates

The hypothesis that New Zealand 90-day bank bill futures rates are an unbiased predictor of 90-day bank bill rates is tested by applying the single-equation method of Stock and Watson (1993) to quarterly data from 1989 to 1997. The results do not reject the unbiasedness hypothesis for the one and two-quarter-ahead horizons tested. However, the estimated residuals are found to contain significant serial correlation in both cases, which suggests that some degree of information inefficiency might exist. The relative forecasting performance of futures rates against the random-walk is also investigated for weekly horizons up to 26 weeks. The results indicate that futures rates outperform the random-walk over all horizons tested, with the improvement statistically significant for all horizons greater than 1 week.

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File URL: http://www.rbnz.govt.nz/research_and_publications/discussion_papers/1998/g98_8.pdf
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Paper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number G98/8.

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Length: 15p
Date of creation: Jun 1998
Date of revision:
Handle: RePEc:nzb:nzbdps:1998/08
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  1. James H. Stock & Mark W. Watson, 1991. "A simple estimator of cointegrating vectors in higher order integrated systems," Working Paper Series, Macroeconomic Issues 91-3, Federal Reserve Bank of Chicago.
  2. Mishkin, Frederic S, 1988. "The Information in the Term Structure: Some Further Results," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 3(4), pages 307-14, October-D.
  3. Engsted, Tom, 1996. "The predictive power of the money market term structure," International Journal of Forecasting, Elsevier, vol. 12(2), pages 289-295, June.
  4. Campbell, John Y & Shiller, Robert J, 1991. "Yield Spreads and Interest Rate Movements: A Bird's Eye View," Review of Economic Studies, Wiley Blackwell, vol. 58(3), pages 495-514, May.
  5. Ashley, R & Granger, C W J & Schmalensee, R, 1980. "Advertising and Aggregate Consumption: An Analysis of Causality," Econometrica, Econometric Society, vol. 48(5), pages 1149-67, July.
  6. Richard Deaves, 1996. "Forecasting Canadian Short-Term Interest Rates," Canadian Journal of Economics, Canadian Economics Association, vol. 29(3), pages 615-34, August.
  7. Cuthbertson, Keith, 1996. "The Expectations Hypothesis of the Term Structure: The UK Interbank Market," Economic Journal, Royal Economic Society, vol. 106(436), pages 578-92, May.
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