Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86575
Authors: 
Pooter, Michiel De
Year of Publication: 
2007
Series/Report no.: 
Tinbergen Institute Discussion Paper 07-043/4
Abstract: 
In this paper I examine various extensions of the Nelson and Siegel (1987) model with the purpose of fitting and forecasting the term structure of interest rates. As expected, I find that using more flexible models leads to a better in-sample fit of the term structure. However, I show that the out-of-sample predictability improves as well. The four-factor model, which adds a second slope factor to the three-factor Nelson-Siegel model, forecasts particularly well. Especially with a one-step state-space estimation approach the four-factor model produces accurate forecasts and outperforms competitor models across maturities and forecast horizons. Subsample analysis shows that this outperformance is also consistent over time.
Subjects: 
Term structure of interest rates
Nelson-Siegel
Svensson
Forecasting
State-space model
JEL: 
E4
C5
C32
Document Type: 
Working Paper

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