Arbeitspapier
The forecasting power of internal yield curve linkages
This paper investigates whether information from foreign yield curves helps forecast domestic yield curves out-of-sample. A nested methodology to forecast yield curves in domestic and international settings is applied on three major countries (the US, Germany and the UK). This novel methodology is based on dynamic factor models, the EM algorithm and the Kalman filter. The domestic model is compared vis-á-vis an international one, where information from foreign yield curves is allowed to enrich the information set of the domestic yield curve. The results have interesting and original implications. They reveal clear international dependency patterns, strong enough to improve forecasts of Germany and to a lesser extent UK. The US yield curve exhibits a more independent behaviour. In this way, the paper also generalizes anecdotal evidence on international interest rate linkages to the whole yield curve.
- Language
-
Englisch
- Bibliographic citation
-
Series: ECB Working Paper ; No. 1044
- Classification
-
Wirtschaft
Foreign Exchange
- Subject
-
dynamic factor model
EM algorithm
international linkages
Yield curve forecast
Finanzmarkt
Kapitaleinkommen
Prognoseverfahren
Faktorenanalyse
Dynamische Wirtschaftstheorie
Deutschland
Großbritannien
USA
- Event
-
Geistige Schöpfung
- (who)
-
Modugno, Michele
Nikolaou, Kleopatra
- Event
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Veröffentlichung
- (who)
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European Central Bank (ECB)
- (where)
-
Frankfurt a. M.
- (when)
-
2009
- Handle
- Last update
-
10.03.2025, 11:42 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Modugno, Michele
- Nikolaou, Kleopatra
- European Central Bank (ECB)
Time of origin
- 2009
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