Social Sharing
Extended Viewer
Calling Interest Rates with Econometrics
May 1, 1991
Correctly forecasting whether interest rates will go up or down is the most obvious way to beat the bond market. Unfortunately, even with tremendous effort dedicated to Fed-watching, technical analysis, and statistical analysis, forecasting interest rates is usually a frustrating endeavor. We have used state-of-the-art econometric techniques to investigate a variety of interest rate forecasting models. Researchers have found little in the way of conclusive evidence that interest rate levels can be forecasted with these techniques. Work is ongoing and good results may well emerge, but we are sceptical. Another approach to active interest rate management is to try to forecast the changing shape of the term structure--where it will steepen, flatten, invert, and so on.