Term Premia and the Maturity Composition of the Federal Debt: New Evidence from the Term Structure of Interest Rates

Basma Bekdache

Journal of Forecasting, 2001, vol. 20, issue 7, 519-39

Abstract: This paper models bond term premia empirically in terms of the maturity composition of the federal debt and other observable economic variables in a time-varying framework with potential regime shifts. We present regression and out-of sample forecasting results demonstrating that information on the age composition of the Federal debt is useful for forecasting term premia. We show that the multiprocess mixture model, a multi-state time-varying parameter model, outperforms the commonly used GARCH model in out-of-sample forecasts of term premia. The results underscore the importance of modelling term premia, as a function of economic variables rather than just as a function of asset covariances as in the conditional heteroscedasticity models. Copyright © 2001 by John Wiley & Sons, Ltd.

Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:jof:jforec:v:20:y:2001:i:7:p:519-39

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