Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/86606 
Year of Publication: 
2007
Series/Report no.: 
Tinbergen Institute Discussion Paper No. 07-028/4
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
Abstract: 
We forecast the term structure of U.S. Treasury zero-coupon bond yields by analyzing a range of models that have been used in the literature. We assess the relevance of parameter uncertainty by examining the added value of using Bayesian inference compared to frequentist estimation techniques, and model uncertainty by combining forecasts from individual models. Following current literature we also investigate the benefits of incorporating macroeconomic information in yield curve models. Our results show that adding macroeconomic factors is very beneficial for improving the out-of-sample forecasting performance of individual models. Despite this, the predictive accuracy of models varies over time considerably, irrespective of using the Bayesian or frequentist approach. We show that mitigating model uncertainty by combining forecasts leads to substantial gains in forecasting performance, especially when applying Bayesian model averaging.
Subjects: 
Term structure of interest rates
Nelson-Siegel model
Affine term structure model
forecast combination
Bayesian analysis
JEL: 
C5
C11
C32
E43
E47
F47
Document Type: 
Working Paper

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