HISTORICAL FORECASTING OF INTEREST RATE MEAN AND VOLATILITY OF THE UNITED STATES: IS THERE A ROLE OF UNCERTAINTY?

Hossein Hassani, Mohammad Reza Yeganegi and Rangan Gupta
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Hossein Hassani: Research Institute of Energy Management and Planning (RIEMP), University of Tehran, Tehran 1417466191, Iran
Mohammad Reza Yeganegi: Research Institute of Energy Management and Planning (RIEMP), University of Tehran, Tehran 1417466191, Iran†Department of Accounting, Islamic Azad University, Central Tehran Branch, Tehran, Iran

Annals of Financial Economics (AFE), 2020, vol. 15, issue 04, 1-17

Abstract: Uncertainty is known to have negative impact on financial markets through its effects on investors’ decisions. In the wake of the “Great Recession”, quite a few recent studies have highlighted the role of uncertainty in predicting in-sample movements of interest rates. Since in-sample predictability does not guarantee out-of-sample forecasting gains, in this paper, we used historical daily and monthly data for the US to forecast mean and volatility of interest rate. The results show that changes in uncertainty measure movements fail to add any significant statistical gains to the forecast of interest rates for the US. In other words, policy makers in the US are not likely to improve their accuracy of future movements of the policy rate’s mean and volatility by incorporating information derived from changes in metrics of uncertainty.

Keywords: Interest rate; metrics of uncertainty; mean and volatility forecasting (search for similar items in EconPapers)
Date: 2020
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Working Paper: Historical Forecasting of Interest Rate Mean and Volatility of the United States: Is there a Role of Uncertainty? (2020)
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DOI: 10.1142/S2010495220500189

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