|
EconStor >
Queen Mary, University of London >
School of Economics and Finance, Queen Mary, University of London >
Working Paper Series, School of Economics and Finance, Queen Mary, University of London >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/10419/55155
|
| | |
| Title: | | Forecasting government bond yields with large Bayesian VARs  |
| Authors: | | Carriero, Andrea Kapetanios, George Marcellino, Massimiliano |
| Issue Date: | | 2010 |
| Series/Report no.: | | Working Paper // School of Economics and Finance, Queen Mary, University of London 662 |
| Abstract: | | We propose a new approach to forecasting the term structure of interest rates, which allows to efficiently extract the information contained in a large panel of yields. In particular, we use a large Bayesian Vector Autoregression (BVAR) with an optimal amount of shrinkage towards univariate AR models. Focusing on the U.S., we provide an extensive study on the forecasting performance of our proposed model relative to most of the existing alternative specifications. While most of the existing evidence focuses on statistical measures of forecast accuracy, we also evaluate the performance of the alternative forecasts when used within trading schemes or as a basis for portfolio allocation. We extensively check the robustness of our results via subsample analysis and via a data based Monte Carlo simulation. We find that: i) our proposed BVAR approach produces forecasts systematically more accurate than the random walk forecasts, though the gains are small; ii) some models beat the BVAR for a few selected maturities and forecast horizons, but they perform much worse than the BVAR in the remaining cases; iii) predictive gains with respect to the random walk have decreased over time; iv) different loss functions (i.e., statistical vs economic) lead to different ranking of specific models; v) modelling time variation in term premia is important and useful for forecasting. |
| Subjects: | | Bayesian methods forecasting term structure |
| JEL: | | C11 C53 E43 E47 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Working Paper Series, School of Economics and Finance, Queen Mary, University of London
|
| |
| | |
Download bibliographical data as:
BibTeX
|
| |
Share on:http://hdl.handle.net/10419/55155
|
Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.
|