Does the euro area forward rate provide accurate forecasts of the short rate?

Ana Galvão and Sónia Costa

International Journal of Forecasting, 2013, vol. 29, issue 1, 131-141

Abstract: The forward rate can deliver accurate forecasts of euro area short-term interest rates, depending on the time period. During periods of macroeconomic uncertainty, forecasts obtained from a model of yield and macro factors are more accurate than forward-based forecasts. We provide evidence that a time-varying forward premium explains the variation in the forecasting performance. We develop a method for computing forward premium confidence intervals to identify ex-ante periods during which forward-based forecasts are inaccurate.

Keywords: Interest rates; Forecasting; Forward premium; Euro area (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfor:v:29:y:2013:i:1:p:131-141

DOI: 10.1016/j.ijforecast.2012.07.003

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