An evaluation of private forecasts of interest rate targets in Brazil

Baghestani, Hamid; Marchon, Cassia

doi:10.1016/j.econlet.2011.12.077

Cited by 9 publications

(5 citation statements)

References 14 publications

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“…All 23 forecast time series (100%) predict the future interest rate trend (rising or falling) significantly better than a random walk forecast. These results are in line with previous evidence that the accuracy of interest rate forecasts in the Brazilian market is well above average (Kn€ uppel and Schultefrankenfeld, 2013;Baghestani and Marchon, 2012;Tabak and Feitosa, 2008).…”

Section: Interest Rate Forecastssupporting

confidence: 92%

“…Three studies examine Brazilian interest rate forecasts: Tabak and Feitosa (2008) analyze Brazilian interest rate forecasts for the period 1982–2002 and place particular emphasis on the Diebold-Mariano test. Baghestani and Marchon (2012), on the other hand, assess Brazilian forecasts from the period 2003–2008 and focus on the unbiasedness test. Knüppel and Schultefrankenfeld (2013) examine Brazilian interest rate forecasts in the period 1999–2011 and use Theil's U among other tools.…”

Section: Literature Reviewmentioning

confidence: 99%

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Interest rate forecasts in Latin America

Filiz

Judek

Lorenz

et al. 2021

JES

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PurposeThis paper aims to assess the quality of interest rate forecasts for the money markets in Argentina, Brazil, Chile, Mexico and Venezuela for the period between 2001 and 2019. Future interest rate trends are of key significance for many business-related decisions. Thus, reliable interest rate forecasts are essential, for example, for banks that make profits by carrying out maturity transformations.Design/methodology/approachThe data that we analyze were collected by Consensus Economics through a monthly survey with over 120 renowned economists and were published between 2001 and 2019 in the journal Latin American Consensus Forecasts. The authors use the Diebold-Mariano test, the sign accuracy test, the TOTA coefficient and the unbiasedness test to determine the precision and biasedness of the forecasts.FindingsThe research reveals that the forecasting work carried out in Brazil, Chile and Mexico is remarkably successful. The quality of forecasts from Argentina and Venezuela, on the other hand, is significantly poorer.Originality/valueOver 50 studies have already been published with regard to the accuracy of interest rate forecasts, emphasizing the importance of the topic. However, interest rate forecasts for Latin American money markets have hardly been considered thus far. The paper closes this research gap. Overall, the analyzed database amounts to a total of 209 forecast time series with 28,451 individual interest rate forecasts. This study is thus far more comprehensive than all previous studies.

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Section: Interest Rate Forecastssupporting

confidence: 92%

Section: Literature Reviewmentioning

confidence: 99%

Interest rate forecasts in Latin America

Filiz

Judek

Lorenz

et al. 2021

JES

View full text Add to dashboard Cite

show abstract

“…All 23 forecast time series (100%) predict the future interest rate trend (rising or falling) significantly better than a random walk forecast. These results are in line with previous evidence that the accuracy of interest rate forecasts in the Brazilian market is well above average (Knüppel & Schultefrankenfeld, 2013;Baghestani & Marchon, 2012;Tabak & Feitosa, 2008).…”

Section: Resultssupporting

confidence: 92%

“…Three studies examine Brazilian interest rate forecasts: Tabak and Feitosa (2008) analyze Brazilian interest rate forecasts for the period 1982-2002 and place particular emphasis on the Diebold-Mariano test. Baghestani and Marchon (2012), on the other hand, assess Brazilian forecasts from the period 2003-2008 and focus on the unbiasedness test. Knüppel and Schultefrankenfeld (2013) examine Brazilian interest rate forecasts in the period 1999-2011 and use Theil's U among other tools.…”

Section: Introductionmentioning

confidence: 99%

Algorithmic Decision-Making, Economic Behavior and Predictability in Financial Markets

Judek¹

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Digital transformation is producing a growing number of technological innovations that have an impact on our daily lives. In a variety of areas, economic agents increasingly have the opportunity to interact with algorithms, as shown, for example, by the offering of robo-advisors, and thus also to influence events on financial markets. This thesis aims to examine the behavior of economic agents when interacting with algorithms and their willingness to use them in order to contribute to a better understanding of Algorithm Aversion. Algorithm Aversion describes the negative attitude towards the use of algorithms that economic agents often exhibit once they realize that algorithms are superior but not error-free. The first part of this thesis consists of five experimental studies in this regard. The first contribution shows that Algorithm Aversion in repeated tasks can be partially reduced by increasing experience over time. The second contribution addresses the scope of a decision and shows that the use of algorithms is often rejected in situations where the consequences of an error are serious, even though their use has a higher chance of success. The third contribution shows that possible user interventions in the prediction generation process reduce Algorithm Aversion more reliably if they are granted on the prediction result (output of the algorithm) instead of on the configuration (input of an algorithm). The fourth contribution examines the impact of proxy decisions on Algorithm Aversion. However, making decisions for third parties does not reduce the extent of Algorithm Aversion. The fifth contribution shows that the decision behavior to use an algorithm varies with the prior adoption rate of other economic agents, and that a prior high adoption rate leads to more frequent use of an algorithm than a prior low adoption rate. Overall, Algorithm Aversion proves to be highly robust and can contribute to suboptimal decisions. Overcoming Algorithm Aversion is essential to exploit the great potential that technological innovation brings to forecasting. The second part of this thesis consists of two more papers that contribute to the literature on the quality of capital market forecasts. While the sixth contribution examines the quality of interest rate forecasts in the Latin American region, the seventh contribution focuses on stock market forecasts for three major indices. Overall, the capital market forecasts examined are in most cases inadequate. While forecasts in the Latin American region largely reflect current rather than future interest rate developments, stock index forecasts show that most stock market analysts underestimate the variability of reality and tend toward conservatism. Therefore, it is crucial to improve forecasting models and to react more flexibly to new developments. vii Zusammenfassung Die digitale Transformation bringt immer mehr technische Innovationen hervor, die Auswirkungen auf unser tägliches Leben haben. In einer Vielzahl von Bereichen haben Wirtschaftsakteure zunehmend die Möglichke...

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“…Even forecasts drawn up by experts are regularly based too closely on the status quo and their accuracy rarely exceeds that of a naïve forecast, that is, predicting that everything will remain as it is (Kunze et al, 2017;Beechey & Österholm, 2014;Tabak & Feitosa, 2008). Furthermore, it has been shown that forecasts are often biased, i.e., have systematic errors (Baghestani & Marchon, 2012;Fraser & McDonald, 1993;Lakonishok, 1980). Nevertheless, important economic policy decisions are made on the basis of these inadequately created forecasts.…”

Section: Introductionmentioning

confidence: 99%

Algorithm Aversion and Other Causes of Bias in Decision Behavior

Lorenz¹

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The eighth study of this dissertation therefore contributes to the debate on the role of the neoclassical market model.Taken as a whole, the results of this dissertation point in a clear direction. The behavior of subjects in economic decision making, forecasting, and markets, is usually at odds with what the models of neoclassical school of thought suggest. Neither a Homo Oeconomicus nor a neoclassical market can be observed in practice. Today's widespread use of the neoclassical model for important economic policy decisions should therefore be reconsidered, as it may lead to suboptimal conclusions and decisions. Modern approaches, such as behavioral economics, often seem to be much better suited to explaining economic reality.

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An evaluation of private forecasts of interest rate targets in Brazil

Cited by 9 publications

References 14 publications

Interest rate forecasts in Latin America

Interest rate forecasts in Latin America

Algorithmic Decision-Making, Economic Behavior and Predictability in Financial Markets

Algorithm Aversion and Other Causes of Bias in Decision Behavior

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