DP15039 Uncertainty and dispersion in professional interest rate forecasts: International evidence and theory

Author(s): Alex Cukierman, Thomas Lustenberger
Publication Date: July 2020
Keyword(s): forecast dispersion, private noisy information, public information, uncertainty, Variability
JEL(s): D8, E4, G0
Programme Areas: Financial Economics, Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15039

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.