Template-type: ReDIF-Paper 1.0
Author-Name: Alfonso Novales 
Author-Email: anovales@ccee.ucm.es
Author-Homepage: https://www.ucm.es/fundamentos-analisis-economico2/novales-cinca,-alfonso
Author-Person: pno7
Author-Workplace-Name: Departamento de Economía Cuantitativa. Universidad Complutense de Madrid
Author-Workplace-Homepage: https://www.ucm.es/fundamentos-analisis-economico2
Author-Name: Emilio Domínguez 
Author-Workplace-Name: Departamento de Análisis Económico. Universidad Pública de Navarra.
Title: Can forward rates be used to improve interest rate forecasts?". 
Abstract: We evaluate the extent to which the explanatory power detected in the term structure 
	in different markets and countries can actually be used to produce sensible forecasts 
	of future short-term interest rates. Specifically, in spite of the forecasting connotation 
	of the unbiasedness property of forward rates, actual evaluation of their forecasting performance 
	has received scant attention in the literature on the term structure. We use monthly data for 
	1978-1998 on interest rates on Eurodeposits on the US dollar, yen, Deutsche mark, British pound, 
	Spanish peseta, French franc, Italian lira and Swiss franc, comparing forecasts obtained from forward 
	rates to those obtained from univariate autoregressions. By themselves, forward rates produce better 
	one-step ahead forecasts, as well as better once-and-for all forecasts of 1-month interest rates 
	over a full year horizon than those obtained from the own past of interest rates. The gain in one-step 
	ahead forecasting disappears for longer maturities, although forward rates still produce better 
	once-and-for all predictions of 3- and 6-month interest rates than univariate autoregressions for 
	a number of currencies.
Classification-JEL: E37, E43
Keywords: Expectations hypothesis, Term structure, Forward rates
Length: pages
Creation-Date: 2002 
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae0225.txt
File-URL: https://eprints.ucm.es/id/eprint/7681/1/0222.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:0225