Interest rate uncertainty and the predictability of bank revenues

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buir.contributor.authorSensoy, Ahmet
buir.contributor.orcidSensoy, Ahmet|0000-0001-7967-5171
dc.citation.epage1569en_US
dc.citation.issueNumber8en_US
dc.citation.spage1559en_US
dc.citation.volumeNumber41en_US
dc.contributor.authorCepni, O.
dc.contributor.authorDemirer, R.
dc.contributor.authorGupta, R.
dc.contributor.authorSensoy, Ahmet
dc.date.accessioned2023-02-16T07:38:59Z
dc.date.available2023-02-16T07:38:59Z
dc.date.issued2022-06-24
dc.departmentDepartment of Economicsen_US
dc.description.abstractThis paper examines the predictive power of interest rate uncertainty over pre-provision net revenues (PPNR) in a large panel of bank holding companies (BHC). Utilizing a linear dynamic panel model based on Bayes predictor, we show that supplementing forecasting models with interest rate uncertainty improves the forecasting performance with the augmented model yielding lower forecast errors in comparison to a baseline model which includes unemployment rate, federal funds rate, and spread variables. Further separating PPNRs into two components that reflect net interest and non-interest income, we show that the predictive power of interest rate uncertainty is concentrated on the non-interest component of bank revenues. Finally, examining the point predictions under a severely stressed scenario, we show that the model can successfully predict the negative effect on overall bank revenues with a rise in the non-interest component of income during 2009:Q1. Overall, the findings suggest that stress testing exercises that involve bank revenue models can benefit from the inclusion of interest rate uncertainty and the cross-sectional information embedded in the panel of BHCs.en_US
dc.description.provenanceSubmitted by Aleyna Demirkıran (demirkiranaleyna99@gmail.com) on 2023-02-16T07:38:59Z No. of bitstreams: 1 Interest_rate_uncertainty_and_the_predictability_of_bank_revenues.pdf: 4179525 bytes, checksum: b4c748d0612067f67e9865ecb1f5080d (MD5)en
dc.description.provenanceMade available in DSpace on 2023-02-16T07:38:59Z (GMT). No. of bitstreams: 1 Interest_rate_uncertainty_and_the_predictability_of_bank_revenues.pdf: 4179525 bytes, checksum: b4c748d0612067f67e9865ecb1f5080d (MD5) Previous issue date: 2022-06-24en
dc.identifier.doi10.1002/for.2884en_US
dc.identifier.eissn1099-131X
dc.identifier.issn0277-6693
dc.identifier.urihttp://hdl.handle.net/11693/111397
dc.language.isoEnglishen_US
dc.publisherJohn Wiley & Sons, Ltden_US
dc.relation.isversionofhttps://doi.org/10.1002/for.2884en_US
dc.source.titleJournal of Forecastingen_US
dc.subjectBank stress testsen_US
dc.subjectEmpirical Bayesen_US
dc.subjectInterest rate uncertaintyen_US
dc.subjectOut-of-sample forecastsen_US
dc.titleInterest rate uncertainty and the predictability of bank revenuesen_US
dc.typeArticleen_US

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