An error correction factor model of term structure slopes in international swap markets
The first two principal components in the vector of term structure slopes from IRS markets in eight major currencies can be approximately identified as the slopes for the US dollar and Deutsche mark. Each of the eight slopes considered is cointegrated with these two factors. The implied Error Correction models can be very fruitful for short and medium term slope forecasting for the eight currencies. This scheme achieves a drastic reduction of dimensionality, since the eight slopes can be predicted using just univariate forecasts for the two factors. Adding more factors to the model does not lead to a significant improvement in forecasting performance, while forecasts obtained using just one factor are not as good as those from two-factor Error Correction models.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 15 (2005)
Issue (Month): 3 (July)
|Contact details of provider:|| Web page: http://www.elsevier.com/locate/intfin|
References listed on IDEAS
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.:
- Engsted, Tom & Tanggaard, Carsten, 1994. "Cointegration and the US term structure," Journal of Banking & Finance, Elsevier, vol. 18(1), pages 167-181, January.
- Knez, Peter J & Litterman, Robert & Scheinkman, Jose Alexandre, 1994. " Explorations into Factors Explaining Money Market Returns," Journal of Finance, American Finance Association, vol. 49(5), pages 1861-82, December.
- Arturo Estrella & Frederic S. Mishkin, 1995.
"Predicting U.S. Recessions: Financial Variables as Leading Indicators,"
NBER Working Papers
5379, National Bureau of Economic Research, Inc.
- Arturo Estrella & Frederic S. Mishkin, 1998. "Predicting U.S. Recessions: Financial Variables As Leading Indicators," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 45-61, February.
- Arturo Estrella & Frederic S. Mishkin, 1996. "Predicting U.S. recessions: financial variables as leading indicators," Research Paper 9609, Federal Reserve Bank of New York.
- Sauer, Christine & Scheide, Joachim, 1995. "Money, interest rate spreads, and economic activity," Open Access Publications from Kiel Institute for the World Economy 1664, Kiel Institute for the World Economy (IfW).
- Tom Engsted & Ken Nyholm, 2000. "Regime shifts in the Danish term structure of interest rates," Empirical Economics, Springer, vol. 25(1), pages 1-13.
- Zuliu Hu, 1993. "The Yield Curve and Real Activity," IMF Staff Papers, Palgrave Macmillan, vol. 40(4), pages 781-806, December.
- Longstaff, Francis A., 2000. "The term structure of very short-term rates: New evidence for the expectations hypothesis," Journal of Financial Economics, Elsevier, vol. 58(3), pages 397-415, December.
- Bekaert, Geert & Hodrick, Robert J. & Marshall, David A., 1997.
"On biases in tests of the expectations hypothesis of the term structure of interest rates,"
Journal of Financial Economics,
Elsevier, vol. 44(3), pages 309-348, June.
- Geert Bekaert & Robert J. Hodrick & David A. Marshall, 1996. "On Biases in Tests of the Expecations Hypothesis of the Term Structure Of Interest Rates," NBER Technical Working Papers 0191, National Bureau of Economic Research, Inc.
- Geert Bekaert & Robert J. Hodrick & David Marshall, 1996. "On biases in tests of the expectations hypothesis of the term structure of interest rates," Working Paper Series, Issues in Financial Regulation WP-96-3, Federal Reserve Bank of Chicago.
- Gregory D. Sutton, 2000. "A defence of the expectations theory as a model of us long-term interest rates," BIS Working Papers 85, Bank for International Settlements.
- Alfonso Novales & Emilio Domínguez, 2002.
"A factor model of term structure slopes in eurocurrency markets,"
Documentos de Trabajo del ICAE
0224, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
- Emilio Dominguez & Alfonso Novales, 2002. "A factor model of term structure slopes in Eurocurrency markets," Applied Economics Letters, Taylor & Francis Journals, vol. 9(9), pages 585-593.
- Gikas A. Hardouvelis, 1987.
"The predictive power of the term structure during recent monetary regimes,"
8708, Federal Reserve Bank of New York.
- Hardouvelis, Gikas A, 1988. " The Predictive Power of the Term Structure during Recent Monetary Regimes," Journal of Finance, American Finance Association, vol. 43(2), pages 339-56, June.
- Zuliu Hu, 1993. "The Yield Curve and Real Activity," IMF Working Papers 93/19, International Monetary Fund.
- Estrella, Arturo & Hardouvelis, Gikas A, 1991.
" The Term Structure as a Predictor of Real Economic Activity,"
Journal of Finance,
American Finance Association, vol. 46(2), pages 555-76, June.
- Arturo Estrella & Gikas A. Hardouvelis, 1989. "The term structure as a predictor of real economic activity," Research Paper 8907, Federal Reserve Bank of New York.
When requesting a correction, please mention this item's handle: RePEc:eee:intfin:v:15:y:2005:i:3:p:229-254. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.