Forecasting the yield curve for the Euro region
This paper compares the forecast precision of the Functional Signal plus Noise (FSN), the Dynamic Nelson–Siegel (DL), and a random walk model. The empirical results suggest that both outperform the random walk at short horizons (one-month) and that the FSN model outperforms the DL at the one- and three-months forecasting horizon. The conclusions provided in this paper are important for policy makers, fixed income portfolio managers, financial institutions and academics.
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