The Empirical (Ir)Relevance of the Interest Rate Assumption for Central Bank Forecasts

46 Pages Posted: 21 Jun 2016

See all articles by Malte Knüppel

Malte Knüppel

Deutsche Bundesbank - Research Centre

Guido Schultefrankenfeld

Deutsche Bundesbank

Date Written: 2013


The interest rate assumptions for macroeconomic forecasts differ considerably among central banks. Common approaches are given by the assumption of constant interest rates, interest rates expected by market participants, or the central bank's own interest rate expectations. From a theoretical point of view, the latter should yield the highest forecast accuracy. The lowest accuracy can be expected from forecasts conditioned on constant interest rates. However, when investigating the predictive accuracy of the forecasts for interest rates, inflation and output growth made by the Bank of England and the Banco do Brasil, we hardly find any significant differences between the forecasts based on different interest assumptions. We conclude that the choice of the interest rate assumption, while being a major concern from a theoretical point of view, appears to be at best of minor relevance empirically.

Keywords: Forecast Accuracy, Density Forecasts, Projections

JEL Classification: C12, C53

Suggested Citation

Knüppel, Malte and Schultefrankenfeld, Guido, The Empirical (Ir)Relevance of the Interest Rate Assumption for Central Bank Forecasts (2013). Bundesbank Discussion Paper No. 11/2013, Available at SSRN: or

Malte Knüppel (Contact Author)

Deutsche Bundesbank - Research Centre ( email )

Wilhelm-Epstein-Str. 14
D-60431 Frankfurt/Main


Guido Schultefrankenfeld

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Research Centre
Frankfurt/Main, DE Hesse 60431


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