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Discussion Paper Details

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Title: Uncertainty and dispersion in professional interest rate forecasts: International evidence and theory

Author(s): Alex Cukierman and Thomas Lustenberger

Publication Date: July 2020

Keyword(s): forecast dispersion, private noisy information, public information, uncertainty and Variability

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

Abstract: 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.

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Bibliographic Reference

Cukierman, A and Lustenberger, T. 2020. 'Uncertainty and dispersion in professional interest rate forecasts: International evidence and theory'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15039