Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/87380
Authors: 
van Dijk, Dick
Koopman, Siem Jan
van der Wel, Michel
Wright, Jonathan H.
Year of Publication: 
2012
Series/Report no.: 
Tinbergen Institute Discussion Paper 12-076/4
Abstract: 
Many economic studies on inflation forecasting have found favorable results when inflation is modeled as a stationary process around a slowly time-varying trend. In contrast, the existing studies on interest rate forecasting either treat yields as being stationary, without any shifting endpoints, or treat yields as a random walk process. In this study we consider the problem of forecasting the term structure of interest rates with the assumption that the yield curve is driven by factors that are stationary around a time-varying trend. We compare alternative ways of modeling the time-varying trend. We find that allowing for shifting endpoints in yield curve factors can provide gains in the out-of-sample predictive accuracy, relative to stationary and random walk benchmarks. The results are both economically and statistically significant.
Subjects: 
term structure of interest rates
forecasting
non-stationarity
survey forecasts
yield curve
JEL: 
C32
E43
G17
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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