Forecasting the Yield Curve in a Data‐Rich Environment Using the Factor‐Augmented Nelson–Siegel Model
AbstractVarious ways of extracting macroeconomic information from a data-rich environment are compared with the objective of forecasting yield curves using the Nelson-Siegel model. Five issues in factor extraction are addressed, namely, selection of a subset of the available information, incorporation of the forecast objective in constructing factors, specification of a multivariate forecast objective, data grouping before constructing factors, and selection of the number of factors in a data-driven way. Our empirical results show that each of these features helps to improve forecast accuracy, especially for the shortest and longest maturities. The data-driven methods perform well in relatively volatile periods, when simpler models do not suffice.
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Bibliographic InfoArticle provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.
Volume (Year): 32 (2013)
Issue (Month): 3 (04)
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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966
Other versions of this item:
- Exterkate, P. & Dijk, D.J.C. van & Heij, C. & Groenen, P.J.F., 2010. "Forecasting the Yield Curve in a Data-Rich Environment using the Factor-Augmented Nelson-Siegel Model," Econometric Institute Report EI 2010-06, Erasmus University Rotterdam, Econometric Institute.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Michiel D. de Pooter & Francesco Ravazzolo & Dick van Dijk, 2007.
"Predicting the Term Structure of Interest Rates: Incorporating Parameter Uncertainty, Model Uncertainty and Macroeconomic Information,"
Tinbergen Institute Discussion Papers
07-028/4, Tinbergen Institute.
- De Pooter, Michiel & Ravazzolo, Francesco & van Dijk, Dick, 2006. "Predicting the term structure of interest rates incorporating parameter uncertainty, model uncertainty and macroeconomic information," MPRA Paper 2512, University Library of Munich, Germany, revised 03 Mar 2007.
- Caio Almeida & Axel Simonsen & José Vicente, 2012. "Forecasting Bond Yields with Segmented Term Structure Models," Working Papers Series 288, Central Bank of Brazil, Research Department.
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