Forecast rationality and monetary policy frameworks: Evidence from UK interest rate forecasts

Georgios Chortareas, Boonlert Jitmaneeroj, Andrew Wood*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

We find evidence of heterogeneity and irrationality among professional forecasts for three-month inter-bank rates and ten-year gilt yields at both short and long forecast horizons over the period 1989-2006. The majority of biased forecasts overestimate the future spot rate, consistent with slow adjustment to the declining trend in inflation and interest rates. Furthermore, we produce evidence indicating that both monetary policy actions and elements of communication policy have information content regarding the rationality of forecasts. Changes in official bank rates and disagreement among the Monetary Policy Committee influence the rationality of forecasts. The publication of inflation reports has no effect.

Original languageEnglish
Pages (from-to)209-231
Number of pages23
JournalJournal of International Financial Markets, Institutions and Money
Volume22
Issue number1
DOIs
Publication statusPublished - Feb 2012

Keywords

  • Heterogeneity
  • Monetary policy frameworks
  • Rational Expectations
  • Survey forecasts
  • Term structure

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