Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/240657 
Year of Publication: 
2018
Series/Report no.: 
Working Papers No. 2018-16
Publisher: 
Banco de México, Ciudad de México
Abstract: 
Information extracted from financial derivatives on interest rates is commonly used to forecast movements in such rates. Yet, such an extraction generally assumes that agents are risk-neutral. Thus, it might be useful to account for their risk-aversion when doing forecasts. This can be done adding a risk-correction. In this context, we use TIIE-28 swaps to forecast changes in monetary policy in Mexico, using financial variables to account for the risk-correction. We assess whether models with a risk-correction outperform the TIIE-28 swaps rates. Their in-sample explained variability improves when using a risk-correction. Our main model's out-of-sample forecasts are similar for short horizons (3-month), and statistically better for longer horizons (9 to 24-month), compared to the direct use of TIIE-28 swaps interest rates.
Subjects: 
TIIE-28
Swaps
Interest Rates
Expected Monetary Policy
JEL: 
E52
G12
Document Type: 
Working Paper
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