EconPapers    
Economics at your fingertips  
 

Term Structure Dynamics, Macro-Finance Factors and Model Uncertainty

Joseph Byrne, Shuo Cao and Dimitris Korobilis

MPRA Paper from University Library of Munich, Germany

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)
JEL-codes: C32 C52 E43 E47 G11 G17 (search for similar items in EconPapers)
Date: 2015-04
New Economics Papers: this item is included in nep-ecm, nep-mac and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/63844/1/MPRA_paper_63844.pdf original version (application/pdf)

Related works:
Working Paper: Term Structure Dynamics, Macro-Finance Factors and Model Uncertainty (2016) Downloads
Working Paper: Term Structure Dynamics, Macro-Finance Factors and Model Uncertainty (2015) Downloads
Working Paper: Term Structure Dynamics, Macro-Finance Factors and Model Uncertainty (2015) Downloads
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:pra:mprapa:63844

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().

 
Page updated 2025-03-22
Handle: RePEc:pra:mprapa:63844