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Historical Forecasting of Interest Rate Mean and Volatility of the United States: Is there a Role of Uncertainty?

Author

Listed:
  • Hossein Hassani

    (Research Institute of Energy Management and Planning (RIEMP), University of Tehran, No. 13, Ghods St., Enghelab Ave., Tehran, Iran)

  • Mohammad Reza Yeganegi

    (Department of Accounting, Islamic Azad University, Central Tehran Branch, Tehran 477893855, Iran)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa)

Abstract

Uncertainty is known to have a 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 the mean and volatility of interest rate. The results indicate that uncertainty fails to add any statistical gains to the forecast of interest rates for the US. In other words, policymakers in the US are not likely to improve their accuracy of future movements of the policy rate's two first moments by incorporating information derived from 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?," Working Papers 202075, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202075
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    References listed on IDEAS

    as
    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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    Cited by:

    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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