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Forecasts of US Short-term Interest Rates: A Flexible Forecast Combination Approach

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Author Info
Guidolin, Massimo
Timmermann, Allan G

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Abstract

This paper develops a flexible approach to combine forecasts of future spot rates with forecasts from time-series models or macroeconomic variables. We find empirical evidence that accounting for both regimes in interest rate dynamics and combining forecasts from different models helps improve the out-of-sample forecasting performance for US short-term rates. Imposing restrictions from the expectations hypothesis on the forecasting model are found to help at long forecasting horizons.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6188.

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Date of creation: Mar 2007
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Handle: RePEc:cpr:ceprdp:6188

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Keywords: forecast combinations term structure of interest rates

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Find related papers by JEL classification:
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

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Cited by:
(explanations, 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.)

  1. Massimo Guidolin & Stuart Hyde, 2008. "Equity portfolio diversification under time-varying predictability and comovements: evidence from Ireland, the US, and the UK," Working Papers 2008-005, Federal Reserve Bank of St. Louis. [Downloadable!]
  2. 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. [Downloadable!]
    Other versions:
  3. Massimo Guidolin & Stuart Hyde & David McMillan & Sadayuki Ono, 2008. "Non-linear predictability in stock and bond returns: when and where is it exploitable?," Working Papers 2008-010, Federal Reserve Bank of St. Louis. [Downloadable!]
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