Term Structure Forecasting Using Macro Factors and Forecast Combination

Arbeitspapier

We examine the importance of incorporating macroeconomic information and, in particular, accounting for model uncertainty when forecasting the term structure of U.S.interest rates. We start off by analyzing and comparing the forecast performance of several individual term structure models. Our results confirm and extend results found in previous literature that adding macroeconomic information, through factors extracted from a large number of individual series, tends to improve interest rate forecasts. We then show, however, that the predictive power of individual models varies over time significantly. Models with macro factors are the more accurate in and around recession periods. Models without macro factors do particularly well in low-volatility subperiods such as the late 1990s. We demonstrate that this problem of model uncertainty can be mitigated by combining individual model forecasts. Combining forecasts leads to encouraging gains in predictability, especially for longer-dated maturities, and importantly, these gains are consistent over time.

Angaben zum Objekt

• ISBN: 978-82-7553-539-7
• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Working Paper ; No. 2010/01

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Bayesian Analysis: General ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Interest Rates: Determination, Term Structure, and Effects ; Money and Interest Rates: Forecasting and Simulation: Models and Applications
• Thema: Nelson-Siegel model ; term structure of interest rates ; affine term structure model ; macro factors ; forecast combination ; model confidence set

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): de Pooter, Michiel ; Ravazzolo, Francesco ; van Dijk, Dick
• Ereignis: Veröffentlichung
• (wer): Norges Bank
• (wo): Oslo
• (wann): 2010

Weitere Informationen

• Handle: http://hdl.handle.net/10419/209946
• Letzte Aktualisierung: 10.03.2025, 11:41 MEZ