International Evidence on Professional Interest Rates Forecasts: The Impact of Forecasting Ability

36 Pages Posted: 12 Dec 2017

See all articles by Alex Cukierman

Alex Cukierman

Tel Aviv University - Eitan Berglas School of Economics; Interdisciplinary Center (IDC) Herzliyah; Centre for Economic Policy Research (CEPR)

Thomas Lustenberger

Swiss National Bank; University of Basel - Faculty of Business and Economics

Date Written: December 2017

Abstract

This paper develops a model of honest rational professional forecasters with different abilities and submits it to empirical verification using data on three and twelve months ahead forecasts of short term interest rates and of long term bond yields for up to 33 countries using data collected by Consensus Economics. The main finding is that, in many countries, less precise forecasters weigh public information more heavily than more precise forecasters who weigh their own private information relatively more heavily. One implication of this result is that less precise forecasters herd after more precise forecasters even in the absence of strategic considerations.

The second part of the paper discusses and examines the cross-country relationships between measures of forecast uncertainty, dispersion of forecasts across individual forecasters and the variabilities of short term interest rates and of long term bonds. The main findings are: (i) Forecast uncertainty and dispersion are positively and significantly related across countries for both short rates and yields. (ii) A similar positive, albeit somewhat weaker, association is found between uncertainty and variability. (iii) Dispersion of short term interest rate forecasts and the variability of those rates are also positively associated. The paper also documents differences between the average forecasting errors of more and less able forecasters as well as substantial correlations between the forecast errors of different forecasters.

Keywords: cross-country relation between forecast dispersion and uncertainty., Forecasting interest rates and bond yields, impact of forecasting ability on forecast formation

JEL Classification: E47, G17

Suggested Citation

Cukierman, Alex and Lustenberger, Thomas and Lustenberger, Thomas, International Evidence on Professional Interest Rates Forecasts: The Impact of Forecasting Ability (December 2017). Available at SSRN: https://ssrn.com/abstract=3086147

Alex Cukierman (Contact Author)

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 540 5360 (Phone)
+972 3 640 9908 (Fax)

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

HOME PAGE: http://www.tau.ac.il/~alexcuk/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Thomas Lustenberger

University of Basel - Faculty of Business and Economics ( email )

Petersplatz 1
Basel, 4001
Switzerland

Swiss National Bank

Research
Fraumuensterstr. 8
Zuerich, 8022
Switzerland

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