Do analysts' forecasts of term spread differential help predict directional change in exchange rates?

Hamid Baghestani and Hugo Toledo

International Review of Economics & Finance, 2017, vol. 47, issue C, 62-69

Abstract: We show that Blue Chip analysts' forecasts of US-Australia and US-UK exchange rates cannot accurately predict directional change in these exchange rates. The literature suggests that the cross-country term spread differential contains useful information for predicting exchange rates. We show that the difference between analysts' and random walk forecasts of the US-Australia (US-UK) term spread differential has directional predictability for the US-Australia (US-UK) exchange rate for 1997–2007 but not for 2008–2015. For the former period, the predictions generally imply symmetric loss, meaning that they are of value to a user who assigns similar loss to both incorrect upward and downward moves.

Keywords: Yield curve; Blue Chip survey; Directional accuracy; Symmetric loss (search for similar items in EconPapers)
JEL-codes: E43 F31 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:47:y:2017:i:c:p:62-69

DOI: 10.1016/j.iref.2016.10.003

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