Citation

Discussion Paper Details

Please find the details for DP14800 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Forward interest rates as predictors of future US and UK spot rates before and after the 2008 financial crisis

Author(s): Michael R. Wickens

Publication Date: May 2020

Keyword(s):

Programme Area(s): Financial Economics and Monetary Economics and Fluctuations

Abstract: A feature of the financial crisis rarely mentioned in the academic literature is that forward interest rates remained persistently higher than future spot rates. Yet according to the expectations hypothesis forward interest rates are unbiased predictors of future spot rates. More general theories attribute the forecast errors to term premia. This paper examines whether these theories can explain data for the US and UK that spans the financial crisis and whether alternative approaches provide better forecasts. The main findings are that these theories break down after the financial crisis and, not unexpectedly, that the forecast errors are due mainly to monetary policy.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14800

Bibliographic Reference

Wickens, M. 2020. 'Forward interest rates as predictors of future US and UK spot rates before and after the 2008 financial crisis'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14800