|
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/10419/62930
|
| | |
| Title: | | Forecasting the Yield curve using priors from no arbitrage affine term structure models  |
| Authors: | | Carriero, Andrea |
| Issue Date: | | 2007 |
| Series/Report no.: | | Working Paper, Department of Economics, Queen Mary, University of London 612 |
| Abstract: | | In this paper we propose a strategy for forecasting the term structure of interest rates which may produce significant gains in predictive accuracy. The key idea is to use the restrictions implied by Affine Term Structure Models (ATSM) on a vector autoregression (VAR) as prior information rather than imposing them dogmatically. This allows to account for possible model misspecification. We apply the method to a system of five US yields, and we find that the gains in predictive accuracy can be substantial. In particular, for horizons longer than 1-step ahead, our proposed method produces systematically better forecasts than those obtained by using a pure ATSM or an unrestricted VAR, and it also outperforms very competitive benchmarks as the Minnesota prior, the Diebold-Li (2006) model, and the random walk. |
| 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/10419/62930
|
Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.
|