Arbeitspapier
Forecasting the U.S. Term Structure of Interest Rates using a Macroeconomic Smooth Dynamic Factor Model
We extend the class of dynamic factor yield curve models for the inclusion of macro-economic factors. We benefit from recent developments in the dynamic factor literature for extracting the common factors from a large panel of macroeconomic series and for estimating the parameters in the model. We include these factors into a dynamic factor model for the yield curve, in which we model the salient structure of the yield curve by imposing smoothness restrictions on the yield factor loadings via cubic spline functions. We carry out a likelihood-based analysis in which we jointly consider a factor model for the yield curve, a factor model for the macroeconomic series, and their dynamic interactions with the latent dynamic factors. We illustrate the methodology by forecasting the U.S. term structure of interest rates. For this empirical study we use a monthly time series panel of unsmoothed Fama-Bliss zero yields for treasuries of different maturities between 1970 and 2009, which we combine with a macro panel of 110 series over the same sample period. We show that the relation between the macroeconomic factors and yield curve data has an intuitive interpretation, and that there is interdependence between the yield and macroeconomic factors. Finally, we perform an extensive out-of-sample forecasting study. Our main conclusion is that macroeconomic variables can lead to more accurate yield curve forecasts.
- Language
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Englisch
- Bibliographic citation
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Series: Tinbergen Institute Discussion Paper ; No. 11-063/4
- Classification
-
Wirtschaft
Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
Model Construction and Estimation
Interest Rates: Determination, Term Structure, and Effects
- Subject
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Fama-Bliss data set
Kalman filter
Maximum likelihood
Yield curve
Zinsstruktur
USA
Prognoseverfahren
Maximum-Likelihood-Methode
Zustandsraummodell
- Event
-
Geistige Schöpfung
- (who)
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Koopman, Siem Jan
van der Wel, Michel
- Event
-
Veröffentlichung
- (who)
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Tinbergen Institute
- (where)
-
Amsterdam and Rotterdam
- (when)
-
2011
- 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
- Koopman, Siem Jan
- van der Wel, Michel
- Tinbergen Institute
Time of origin
- 2011
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