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Term Premia and the Maturity Composition of the Federal Debt: New Evidence from the Term Structure of Interest Rates

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  • Bekdache, Basma

Abstract

This paper models bond term premia empirically in terms of the maturity composition of the federal debt and other observable economic variables in a time-varying framework with potential regime shifts. We present regression and out-of sample forecasting results demonstrating that information on the age composition of the Federal debt is useful for forecasting term premia. We show that the multiprocess mixture model, a multi-state time-varying parameter model, outperforms the commonly used GARCH model in out-of-sample forecasts of term premia. The results underscore the importance of modelling term premia, as a function of economic variables rather than just as a function of asset covariances as in the conditional heteroscedasticity models. Copyright © 2001 by John Wiley & Sons, Ltd.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.

Volume (Year): 20 (2001)
Issue (Month): 7 (November)
Pages: 519-39

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Handle: RePEc:jof:jforec:v:20:y:2001:i:7:p:519-39

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966

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Cited by:
  1. Jongen, Ron & Verschoor, Willem F.C. & Wolff, Christian C.P., 2011. "Time-variation in term premia: International survey-based evidence," Journal of International Money and Finance, Elsevier, vol. 30(4), pages 605-622, June.
  2. Jongen, Ron & Verschoor, Willem F C & Wolff, Christian C, 2005. "Time Variation in Term Premia: International Evidence," CEPR Discussion Papers 4959, C.E.P.R. Discussion Papers.
  3. Christian Wolff & Ron Jongen & Willem F.C. Verschoor, 2009. "Time-Variation in Term Permia: International Survey-Based Evidence," LSF Research Working Paper Series 09-02, Luxembourg School of Finance, University of Luxembourg.

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