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Forecasts of US short-term interest rates: A flexible forecast combination approach

  • Guidolin, Massimo
  • Timmermann, Allan

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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File URL: http://www.sciencedirect.com/science/article/pii/S0304-4076(08)00226-1
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Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 150 (2009)
Issue (Month): 2 (June)
Pages: 297-311

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Handle: RePEc:eee:econom:v:150:y:2009:i:2:p:297-311
Contact details of provider: Web page: http://www.elsevier.com/locate/jeconom

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