How do Experts Forecast Sovereign Spreads?

 
Author/Editor: Jacopo Cimadomo ; Peter Claeys ; Marcos Poplawski-Ribeiro
 
Publication Date: May 20, 2016
 
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: This paper assesses how forecasting experts form their expectations about future government bond spreads. Using monthly survey forecasts for France, Italy and the United Kingdom between January 1993 and October 2014, we test whether respondents consider the expected evolution of the fiscal balance—and other economic fundamentals—to be significant drivers of the expected bond yield differential over a benchmark German 10-year bond. Our main result is that a projected improvement of the fiscal outlook significantly reduces expected sovereign spreads. This suggests that credible fiscal plans affect market experts’ expectations and reduce the pressure on sovereign bond markets. In addition, we show that expected fundamentals generally play a more important role in explaining forecasted spreads compared to realized spreads.
 
Series: Working Paper No. 16/100
Subject(s): Bond markets | France | Italy | United Kingdom | Germany | Bonds | Bond yields | Cross country analysis | Econometric models | Regression analysis | Forecasting models | Time series

 
English
Publication Date: May 20, 2016
ISBN/ISSN: 9781484362068/1018-5941 Format: Paper
Stock No: WPIEA2016100 Pages: 46
Price:
US$18.00 (Academic Rate:
US$18.00 )
 
 
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