The term structure of interest rates and the macroeconomy: Learning about economic dynamics from a FAVAR

Arne Halberstadt

No 02/2015, Discussion Papers from Deutsche Bundesbank

Abstract: Expectations about macroeconomic developments are important determinants of long term interest rates. In this paper, I compare two different assumptions on how agents may form their expectations about the economy and yields in a pseudo real time exercise. Based on the no-arbitrage factor-augmented vector autoregression model developed by Moench (2008), I apply a purely econometric learning scheme as proposed by Laubach, Tetlow, and Williams (2007) in the estimation and compare the results to those of an estimation without discounting. In- and out-of-sample performance indicates that the agents are more inclined to form their expectations according to the learning approach.

Keywords: Affine Term Structure Models; Factor Models; Learning (search for similar items in EconPapers)
JEL-codes: C38 E43 E44 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:022015

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