The empirical (ir)relevance of the interest rate assumption for central bank forecasts

Malte Knüppel and Guido Schultefrankenfeld

No 11/2013, Discussion Papers from Deutsche Bundesbank

Abstract: The interest rate assumptions for macroeconomic forecasts differ considerably among central banks. Common approaches are given by the assumption of constant interest rates, interest rates expected by market participants, or the central bank's own interest rate expectations. From a theoretical point of view, the latter should yield the highest forecast accuracy. The lowest accuracy can be expected from forecasts conditioned on constant interest rates. However, when investigating the predictive accuracy of the forecasts for interest rates, inflation and output growth made by the Bank of England and the Banco do Brasil, we hardly find any significant differences between the forecasts based on different interest assumptions. We conclude that the choice of the interest rate assumption, while being a major concern from a theoretical point of view, appears to be at best of minor relevance empirically.

Keywords: Forecast Accuracy; Density Forecasts; Projections (search for similar items in EconPapers)
JEL-codes: C12 C53 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-cba, nep-for and nep-mon
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Related works:
Journal Article: Interest rate assumptions and predictive accuracy of central bank forecasts (2017)
Working Paper: The Empirical (Ir)Relevance of the Interest Rate Assumption for Central Bank Forecasts (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:112013

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