Forecasting the yield curve with the arbitrage-free dynamic Nelson-Siegel model: Brazilian evidence

João F. Caldeira, Guilherme Moura () and , Fabricio Tourrucôo
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João F. Caldeira: Universidade Federal do Rio Grande do Sul, Brazil
, Fabricio Tourrucôo: Universidade Federal de Santa Catarina, Brazil
Authors registered in the RePEc Author Service: Andre Alves Portela Santos ()

Economia, 2016, vol. 17, issue 2, 221_237

Abstract: We assess the extent to which the imposition of a no-arbitrage restriction on the dynamic Nelson-Siegel model helps obtaining more accurate forecasts ofthe term structure. Forthat purpose, we provide an empirical application based on a large panel ofBrazilian interestrate future contracts and testfor differencesin forecasting performance among alternative benchmark specificationsincluding the random walk, vector autoregressions, and the dynamic Nelson-Siegel. We show empirically that the arbitrage-free Nelson-Siegel model is able to outperform all other benchmark models when longer forecasting horizons are taken into account.

Keywords: Yield curve; Arbitrage-free Nelson-Siegel model; Dynamic factor models; Kalman filter (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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Working Paper: FORECASTING THE YIELD CURVE WITH THE ARBITRAGE-FREE DYNAMIC NELSON-SIEGEL MODEL: BRAZILIAN EVIDENCE (2016)
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