I propose a strategy for forecasting the term structure of interest rates that may produce significant gains in predictive accuracy. The key idea is to use the restrictions implied by Gaussian, no-arbitrage, affine term structure models on a vector autoregression as prior information instead of imposing the restrictions dogmatically. This allows us to account for possible model misspecification. We use the proposed method to forecast a system of five U.S. yields up to 12 months ahead, and we find it provides significant gains in forecast accuracy.
Forecasting the Yield Curve Using Priors from No Arbitrage Affine Term Structure Models / Carriero A. - In: INTERNATIONAL ECONOMIC REVIEW. - ISSN 1468-2354. - ELETTRONICO. - 52:2(2011), pp. 425-459. [http://dx.doi.org/10.1111/j.1468-2354.2011.00634.x]
Forecasting the Yield Curve Using Priors from No Arbitrage Affine Term Structure Models
Carriero A
2011
Abstract
I propose a strategy for forecasting the term structure of interest rates that may produce significant gains in predictive accuracy. The key idea is to use the restrictions implied by Gaussian, no-arbitrage, affine term structure models on a vector autoregression as prior information instead of imposing the restrictions dogmatically. This allows us to account for possible model misspecification. We use the proposed method to forecast a system of five U.S. yields up to 12 months ahead, and we find it provides significant gains in forecast accuracy.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.