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Forecasting the 10‐year US treasury rate


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  • Hamid Baghestani
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    This study compares the performance of two forecasting models of the 10-year Treasury rate: a random walk (RW) model and an augmented‐autoregressive (A‐A) model which utilizes the information in the expected inflation rate. For 1993–2008, the RW and A‐A forecasts (with different lead times and forecast horizons) are generally unbiased and accurately predict directional change under symmetric loss. However, the A‐A forecasts outperform the RW, suggesting that the expected inflation rate (as a leading indicator) helps improve forecast accuracy. This finding is important since bond market efficiency implies that the RW forecasts are optimal and cannot be improved. Copyright (C) 2009 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): 29 (2010)
    Issue (Month): 8 (December)
    Pages: 673-688

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    Handle: RePEc:jof:jforec:v:29:y:2010:i:8:p:673-688

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    Keywords: random walk ; augmented‐autoregressive ; Fisher equation ; directional accuracy ; symmetric loss ;


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