TY - JOUR

T1 - Forecasting interest rates with shifting endpoints

AU - Van Dijk, Dick

AU - Koopman, Siem Jan

AU - Wel, Michel van der

AU - Wright, Jonathan H.

N1 - Campus adgang til artiklen / Campus access to the article

PY - 2014/1/1

Y1 - 2014/1/1

N2 - We consider forecasting the term structure of interest rates with the assumption that factors driving the yield curve are stationary around a slowly time-varying mean or ‘shifting endpoint’. The shifting endpoints are captured using either (i) time series methods (exponential smoothing) or (ii) long-range survey forecasts of either interest rates or inflation and output growth, or (iii) exponentially smoothed realizations of these macro variables. Allowing for shifting endpoints in yield curve factors provides substantial and significant gains in out-of-sample predictive accuracy, relative to stationary and random walk benchmarks. Forecast improvements are largest for long-maturity interest rates and for long-horizon forecasts.

AB - We consider forecasting the term structure of interest rates with the assumption that factors driving the yield curve are stationary around a slowly time-varying mean or ‘shifting endpoint’. The shifting endpoints are captured using either (i) time series methods (exponential smoothing) or (ii) long-range survey forecasts of either interest rates or inflation and output growth, or (iii) exponentially smoothed realizations of these macro variables. Allowing for shifting endpoints in yield curve factors provides substantial and significant gains in out-of-sample predictive accuracy, relative to stationary and random walk benchmarks. Forecast improvements are largest for long-maturity interest rates and for long-horizon forecasts.

U2 - 10.1002/jae.2358

DO - 10.1002/jae.2358

M3 - Journal article

AN - SCOPUS:84885351169

SP - 693

EP - 712

JO - Journal of Applied Econometrics

JF - Journal of Applied Econometrics

SN - 0883-7252

ER -