Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/152978 
Authors: 
Year of Publication: 
2005
Series/Report no.: 
ECB Working Paper No. 544
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
This paper suggests a term structure model which parsimoniously exploits a broad macroeconomic information set. The model does not incorporate latent yield curve factors, but instead uses the common components of a large number of macroeconomic variables and the short rate as explanatory factors. Precisely, an affine term structure model with parameter restrictions implied by no-arbitrage is added to a Factor-Augmented Vector Autoregression (FAVAR). The model is found to strongly outperform different benchmark models in out-of-sample yield forecasts, reducing root mean squared forecast errors relative to the random walk up to 50% for short and around 20% for long maturities.
Subjects: 
Affine term structure models
Dynamic Factor Models
FAVAR
yield curve
JEL: 
C13
C32
E43
E44
E52
Document Type: 
Working Paper

Files in This Item:
File
Size
867.76 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.