Forecasting the Brazilian yield curve using forward-looking variables

Arbeitspapier

This paper proposes a forecasting model that combines a factor augmented VAR (FAVAR) methodology with the Nelson and Siegel (NS) parametrization of the yield curve to predict the Brazilian term structure of interest rates. Importantly, we extract the principal components for the FAVAR from a large data set containing forward-looking macroeconomic and financial variables. Our forecasting model significantly improves the predicting accuracy of extant models in the literature, particularly at short-term horizons. For instance, the mean absolute forecast errors are 15-40% lower than the random walk benchmark on predictions at the three month horizon. The out-of-sample analysis shows that including forward-looking indicators is the key to improve the predictive ability of the model.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Working Paper ; No. 799

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Central Banks and Their Policies ; Multiple or Simultaneous Equation Models: Classification Methods; Cluster Analysis; Principal Components; Factor Models ; Money and Interest Rates: Forecasting and Simulation: Models and Applications
• Thema: Bonds ; Factor-augmented VAR ; Forecasting ; term structure ; Yield curve

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Vieira, Fausto ; Chague, Fernando ; Fernandes, Marcelo
• Ereignis: Veröffentlichung
• (wer): Queen Mary University of London, School of Economics and Finance
• (wo): London
• (wann): 2016

Weitere Informationen

• Handle: http://hdl.handle.net/10419/175236
• Letzte Aktualisierung: 10.03.2025, 11:43 MEZ