Term Structure Dynamics, Macro-Finance Factors and Model Uncertainty

Joseph Byrne, Shuo Cao and Dimitris Korobilis

No 2015-71, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)

Abstract: This paper extends the Nelson-Siegel linear factor model by developing a flexible macro-finance framework for modeling and forecasting the term structure of US interest rates. Our approach is robust to parameter uncertainty and structural change, as we consider instabilities in parameters and volatilities, and our model averaging method allows for investors' model uncertainty over time. Our time-varying parameter Nelson-Siegel Dynamic Model Averaging (NS-DMA) predicts yields better than standard benchmarks and successfully captures plausible time-varying term premia in real time. The proposed model has significant in-sample and out-of-sample predictability for excess bond returns, and the predictability is of economic value.

Keywords: Term Structure of Interest Rates; Nelson-Siegel; Dynamic Model Averaging; Bayesian Methods; Term Premia (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10943/679
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
Working Paper: Term Structure Dynamics, Macro-Finance Factors and Model Uncertainty (2016)
Working Paper: Term Structure Dynamics, Macro-Finance Factors and Model Uncertainty (2015)
Working Paper: Term Structure Dynamics, Macro-Finance Factors and Model Uncertainty (2015)
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:edn:sirdps:679

Access Statistics for this paper

More papers in SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE) 31 Buccleuch Place, EH8 9JT, Edinburgh. Contact information at EDIRC.
Bibliographic data for series maintained by Research Office ().