How informative are interest rate survey-based forecasts?

Abstract

This paper studies the information content of survey-based predictions for the Brazilian short-term interest rate. We perform vector autoregression analysis to test for the dynamic relationship between market expectations of interest rates and spot interest rates, and a single regression forecasting approach. Empirical results suggest that surveys may be useful in assessing market expectations (contain relevant information) and in building Central Bank credibility. Within an inflation targeting framework they are crucial in order to receive timely feedback on market sentiment regarding the conduct of monetary policy.