Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/197829
Authors: 
Feunou, Bruno
Fontaine, Jean-Sébastien
Jin, Jianjian
Year of Publication: 
2017
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2017-60
Abstract: 
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.
Subjects: 
Financial markets
Interest rates
JEL: 
E43
Document Type: 
Working Paper

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