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AuthorMiah, Fazlul
AuthorKhalifa, Ahmed Ali
AuthorHammoudeh, Shawkat
Available date2021-03-31T08:18:07Z
Publication Date2016
Publication NameEconomic Modelling
ResourceScopus
ISSN2649993
URIhttp://dx.doi.org/10.1016/j.econmod.2015.12.036
URIhttp://hdl.handle.net/10576/18057
AbstractThis study performs unbiasedness and efficiency tests of three-month and twelve-month ahead interest rate forecasts of one short-term and one long-term security of 10 developed and 20 emerging economies by exploiting a new survey data source. The results of the country-specific unbiasedness tests are mixed. However, the panel-based unbiasedness test results show that forecasts are biased. The efficiency test results indicate that forecasters do not incorporate all available information into their forecasts. We also find that emerging markets' interest rates are more predictable than the developed markets' interest rates at the shorter horizon due mainly to high inflation in the emerging markets. We also check for the robustness of our findings by dividing the sample period into two sub-periods, before and after the global financial crisis of 2007. We did not find any significant difference in the sub-period results compared to the full period. By considering a new group of countries (emerging economies), a new data source, and a new estimation approach, our study contributes to the financial market efficiency literature, especially on emerging markets. Investors and monetary policy makers should use these data cautiously as forecasts are not efficient. The study also has implications for monetary policy transparency and independence.
SponsorThe authors wish to thank three anonymous reviewers, the Co-Editors S. Mallick, and P. Narayan of Economic Modelling for their valuable comments that improved the article significantly. The first two authors would like to thank the Deanship of Scientific Research (DSR) at King Fahd University of Petroleum and Minerals (KFUPM) for funding this project (Grant #IN111011 ). We also thank the referees and participants at the EMU-SSEM Euro Conference 2013, the SWFA Conference 2014, as well as the CIM-KFUPM 2012 seminar participants for helpful comments on earlier drafts of the paper. We are especially grateful to Professor William Megginson for his valuable comments at the CIM-KFUPM seminar. Further, we thank Mr. Omar Al-Titi for help with some econometric issues. Lastly, the first author would like to thank Dr. Ender Demir of Istanbul Medeniyet University for valuable comments on an earlier draft of the paper.
Languageen
PublisherElsevier
SubjectConsensus survey data
Developed economies
Emerging markets
Monetary policy transparency
Panel regressions and ADF
Rational expectations
TitleFurther evidence on the rationality of interest rate expectations: A comprehensive study of developed and emerging economies
TypeArticle
Pagination574-590
Volume Number54
dc.accessType Abstract Only


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