Forecasting interest rate volatility of the United Kingdom : evidence from over 150 years of data

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Authors

Hassani, Hossein
Yeganegi, Mohammad Reza
Cunado, Juncal
Gupta, Rangan

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Taylor and Francis

Abstract

This study examines the very short, short, medium and long-term forecasting ability of different univariate GARCH models of United Kingdom (UK)'s interest rate volatility, using a long span monthly data from May 1836 to June 2018. The main results show the relevance of considering alternative error distributions to the normal distribution when estimating GARCH-type models. Thus, we obtain that the Asymmetric Power ARCH (A-PARCH) models with skew generalized error distribution are the most accurate models when forecasting UK interest rates, while for the short, medium and long-term term forecasting horizons, GARCH models with generalized error distribution for the error term are the most accurate models in forecasting UK's interest rates.

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Keywords

Interest rates, Volatility, GARCH models, Forecasting, Error distributions, United Kingdom (UK)

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Citation

Hossein Hassani, Mohammad Reza Yeganegi, Juncal Cuñado & Rangan Gupta (2020): Forecasting interest rate volatility of the United Kingdom: evidence from over 150 years of data, Journal of Applied Statistics 47(6): 1128-1143, DOI: 10.1080/02664763.2019.1666093. NYP.