A note on the directional accuracy of interest-rate forecasts

Abstract

I use data from the Livingston survey to study the informational content of forecasts with respect to the direction of subsequent changes in short-term and long-term interest rates. Using techniques developed to analyse relative operating characteristic (ROC) curves, I find that interest-rate forecasts often contain useful information with respect to the direction of future changes in interest rates.

Keywords:

• interest rates
• forecasting
• directional accuracy
• survey data

JEL Classification:

• D84

Notes

¹ For recent studies of the interest-rate forecasts from the Livingston survey, see Pons-Novell (2004) and Pierdzioch and Rülke (2013).

² Data and a documentation can be downloaded at http://www.phil.frb.org/research-and-data/real-time-center/livingston-survey/. According to the documentation, the T-bond rate refers to the interest rate on 10-year Treasury bonds (prior to December 2002: 30-year Treasury bonds). The T-bill rate refers to the constant-maturity interest rate on 3-months Treasury bills (discount basis). Realized end-of-month values were downloaded from the internet page of the Federal Reserve Bank of St. Louis (http://research.stlouisfed.org/).

³ The crossing ROC curves are a reminder that for some forecasts and does not necessarily imply for all , but for all (except, of course, at the endpoints) implies .