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Can implied forward mortgage rates predict future mortgage rates - recent New Zealand experience


  • Tripe, David
  • Xia, Bingru
  • Roberts, Leigh


Retail mortgage rate data for the last 13 years in New Zealand indicates that implied forward mortgage rates have only limited power to predict later spot mortgage rates. The low correlation of the forward rates and the future spot rates may in part arise from thin futures and forward markets in interest rates in New Zealand for anything longer than short term contracts. While the pattern of mortgage yield curves has varied substantially over those 13 years, the accumulated or future value of a putative deposit of one dollar with a bank offering the same term rates as the mortgage rates shows relatively little variation over this period. In the wake of the uncertainties following the global financial crisis, the relatively stable pattern of these accumulated values probably provides the best means of prediction of New Zealand mortgage yield curves, at least in the short term. The framework used for dealing with data in this paper could be applied to yield curves based on further families of interest rates; to exchange rates; to analyses of run-off data, as in cohort and longevity analysis; and for claims payments run-off in insurance, as well as in many other contexts.

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  • Tripe, David & Xia, Bingru & Roberts, Leigh, 2011. "Can implied forward mortgage rates predict future mortgage rates - recent New Zealand experience," Working Paper Series 1986, Victoria University of Wellington, School of Economics and Finance.
  • Handle: RePEc:vuw:vuwecf:1986

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    1. repec:wsi:wschap:9789813148543_0011 is not listed on IDEAS
    2. Martin D. D. Evans & Richard K. Lyons, 2017. "Meese-Rogoff Redux: Micro-Based Exchange-Rate Forecasting," World Scientific Book Chapters,in: Studies in Foreign Exchange Economics, chapter 11, pages 457-475 World Scientific Publishing Co. Pte. Ltd..
    3. William Poole, 2005. "Understanding the term structure of interest rates," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 589-596.
    4. Yuong Ha & Michael Reddell, 1998. "What do forward interest and exchange rates tell us?," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 61, June.
    5. Ying Liu, 2001. "Modelling Mortgage Rate Changes with a Smooth Transition Error-Correction Model," Staff Working Papers 01-23, Bank of Canada.
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    implied forward mortgage rates; New Zealand; spot mortgage rates;

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