cover image: Which Model to Forecast the Target Rate? /

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Which Model to Forecast the Target Rate? /

19 Dec 2017

'Specifications of the Federal Reserve target rate that have more realistic features mitigate in-sample over-fitting and are favored in the data. Imposing a positivity constraint and discrete increments significantly increases the accuracy of model out-of-sample forecasts for the level and volatility of the Federal Reserve target rates. In addition, imposing the constraints produces different estimates of the response coefficients. In particular, a new and simple specification, where the target rate is the maximum between zero and the prediction of an ordered-choice Probit model, is more accurate and has higher response coefficients to information about inflation and unemployment'--Abstract, p. ii.
economics interest rate monetary policy interest macroeconomics mathematics statistics forecasting macroeconomic forecast accuracy and precision cross-validation (statistics) parameter matrix likelihood function covariance matrix federal open market committee fomc rmse var mean squared errors
ISSN
17019397
Pages
44
Published in
Ottawa, ON, CA

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