Term Structure Forecasting: No-arbitrage Restrictions Versus Large Information set
Carlo Favero (),
Linlin Niu () and
Luca Sala ()
No 2013-10-14, Working Papers from Wang Yanan Institute for Studies in Economics (WISE), Xiamen University
This paper addresses the issue of forecasting the term structure. We provide a unified state-space modelling framework that encompasses different existing discrete-time yield curve models. Within such framework we analyze the impact of two modelling choices, namely the imposition of no-arbitrage restrictions and the size of the information set used to extract factors, on the forecasting performance. Using US yield curve data, we find that both no-arbitrage and large info help in forecasting but no model uniformly dominates the other. No-arbitrage models are more useful at shorter horizon for shorter maturities. Large information sets are more useful at longer horizons and longer maturities. We also find evidence for a significant feedback from yield curve models to macroeconomic variables that could be exploited for macroeconomic forecasting.
Keywords: Yield curve; term structure of interest rates; forecasting; large data set; factor models (search for similar items in EconPapers)
JEL-codes: C33 C53 E43 E44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-for and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to research.soe.xmu.edu.cn:80
Journal Article: Term Structure Forecasting: No‐Arbitrage Restrictions versus Large Information Set (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:wyi:wpaper:002005
Access Statistics for this paper
More papers in Working Papers from Wang Yanan Institute for Studies in Economics (WISE), Xiamen University
Bibliographic data for series maintained by WISE Technical Team ().