Design and development of a fuzzy agent-based model to measure interest rate expectations

The financial system, which has been investigated by various researchers, is a rather complicated environment. Most research has only been concerned with quantitative factors (technical indexes), though qualitative factors (e.g., political situation, social conditions, international events, government policies, among others) play a critical role in the financial system environment, determining the regulatory policies within an economy. This paper presents a fuzzy knowledge-based model to measure the qualitative aspects related to one of the most important financial instruments used to regulate an economy, the base interest rate. The development and assessment of the proposed model was based on the Brazilian economy. Evaluation of the results obtained indicates that our approach gives good results when compared with real data and statistical-based forecasting tools. The main advantage of our approach is its capability to forecast long term interest rate expectations when combined with a powerful econometric model. (C) 2012 Elsevier Ltd. All rights reserved.