THE USE OF SPREADS IN FORECASTING MEDIUM TERM U.K INTEREST RATES

B. Pesaran and G. Wright
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G. Wright: University of East London, Department of Economics, Postal: Longbridge Road, Dagenham, Essex RM8 2AS

Working Papers from University of East London, Department of Economics

Abstract: This paper aims to extend recent work on the term structure of interest rates by establishing, in the context of the medium term UK interbank market, forecasting models which make use of market spreads as error correction terms. These models are then used withi n a trading scenario to test the short run efficiency of the market, The results indicate that this market is inefficient in the short run. Furthermore, the performance of the multi-step-ahead forecasts from the models suggest that this may be a fruitful avenue for further research into longer maturity rates.

Keywords: Interest Rates; Spreads; Forecasting; Long Run Structural Modelling; Market Efficiency (search for similar items in EconPapers)
JEL-codes: C12 C32 C53 E43 (search for similar items in EconPapers)
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