Interest Rates Modeling and Forecasting: Do Macroeconomic Factors Matter?

Adam Kučera

No 2017/08, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: Recent studies documented a sufficient forecasting performance of shadow-rate models in the low yields environment. Moreover, it has been shown that including the macro-variables into the shadow-rate models further improves the results. We build on these findings and evaluate for the U.S. Treasury yields, whether the lower bound proximity was truly the only issue to reflect in the interest rate modeling since the Great Recession. Surprisingly, we discover that the relative importance of yield curve factors has changed as well. More specifically, instead of macroeconomic factors, financial market sentiment factors became dominant since the recent financial turmoil. Based on such finding, we show, that extending the macro-finance interest rate models by financial market sentiment proxies further improves the forecasting performance.

Keywords: Interest Rate; Yield Curve; Macro-Finance Model; Affine Model; Nelson-Siegel (search for similar items in EconPapers)
JEL-codes: C38 C51 C58 E43 E47 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2017-03, Revised 2017-03
New Economics Papers: this item is included in nep-mac
References: Add references at CitEc
Citations:

Downloads: (external link)
http://ies.fsv.cuni.cz/sci/publication/show/id/5640/lang/cs (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://ies.fsv.cuni.cz/sci/publication/show/id/5640/lang/cs [301 Moved Permanently]--> https://ies.fsv.cuni.cz/sci/publication/show/id/5640/lang/cs)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fau:wpaper:wp2017_08

Access Statistics for this paper

More papers in Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies Contact information at EDIRC.
Bibliographic data for series maintained by Natalie Svarcova ().