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The Use Of Spreads In Forecasting Medium Term U.K Interest Rates

  • B. Pesaran
  • G. Wright

    (University of East London, Department of Economics)

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    This paper aims to extend recent work on the term structure of interest rates by establishing, in the context of the medium term UK interbank market, forecasting models which make use of market spreads as error correction terms. These models are then used withi n a trading scenario to test the short run efficiency of the market, The results indicate that this market is inefficient in the short run. Furthermore, the performance of the multi-step-ahead forecasts from the models suggest that this may be a fruitful avenue for further research into longer maturity rates.

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    File URL: ftp://ftp.repec.org/RePEc/wuk/elecwp/elecwp9606.pdf
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    Paper provided by University of East London, Department of Economics in its series Working Papers with number 9606.

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    Handle: RePEc:wuk:elecwp:9606
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    Web page: http://www.uel.ac.uk:80/faculties/socsci/economics

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    1. Pesaran,H.M. & Shin,Y., 1995. "Long-Run Structural Modelling," Cambridge Working Papers in Economics 9419, Faculty of Economics, University of Cambridge.
    2. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
    3. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
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