Uncertainty and Dispersion in Professional Interest Rate Forecasts: International Evidence and Theory
26 Pages Posted: 28 Jul 2020 Last revised: 16 Aug 2020
Date Written: July 2020
We examine the cross-country relationships between measures of forecast uncertainty, forecast dispersion across individual forecasters and the variabilities of short-term interest rates and long-term yields. The main findings are: (i) Forecast uncertainty and forecast dispersion are positively and significantly related across countries for both short-term interest rates and long-term yields. (ii) A positive, albeit weaker, relation is found between forecast uncertainty and interest rate variability. (iii) Forecast dispersion of short-term interest rates and rates' variability are also positively associated. The evidence is followed by a Bayesian learning model that discusses conditions under which the results above are implied by theory.
Keywords: forecast dispersion, private noisy information, public information, uncertainty, Variability
JEL Classification: D8, E4, G0
Suggested Citation: Suggested Citation