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Forecasting interest rates

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  • Gregory R. Duffee

Abstract

This chapter discusses what the asset-pricing literature concludes about the forecastability of interest rates. It outlines forecasting methodologies implied by this literature, including dynamic, no-arbitrage term structure models and their macro-finance extensions. It also reviews the empirical evidence concerning the predictability of future yields on Treasury bonds and future excess returns to holding these bonds. In particular, it critically evaluates theory and evidence that variables other than current bond yields are useful in forecasting.

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Bibliographic Info

Paper provided by The Johns Hopkins University,Department of Economics in its series Economics Working Paper Archive with number 599.

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Date of creation: Jul 2012
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Handle: RePEc:jhu:papers:599

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  23. Scott Joslin & Kenneth J. Singleton & Haoxiang Zhu, 2011. "A New Perspective on Gaussian Dynamic Term Structure Models," Review of Financial Studies, Society for Financial Studies, vol. 24(3), pages 926-970.
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  25. Almeida, Caio & Vicente, José, 2008. "The role of no-arbitrage on forecasting: Lessons from a parametric term structure model," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2695-2705, December.
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  30. Ilan Cooper, 2009. "Time-Varying Risk Premiums and the Output Gap," Review of Financial Studies, Society for Financial Studies, vol. 22(7), pages 2601-2633, July.
  31. Carlo A. Favero & Linlin Niu & Luca Sala, 2012. "Term Structure Forecasting: No‐Arbitrage Restrictions versus Large Information Set," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 31(2), pages 124-156, 03.
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