Risk-adjusted model anticipates rate changes better – paper
Monetary policy forecasts perform better when adjusted to risk, authors say
A research team at the Banco de México investigates a model which could give market participants, in particular the monetary authority, better forecasts for monetary policy changes.
In the working paper, the team looks at whether models that use interest rate swaps to forecast changes in Mexican policy perform better when adjusted to risk.
Santiago García-Verdú, Manuel Ramos-Francia and Manuel Sánchez-Martínez create a model-based forecast by extracting information from the interest rate
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