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Forecasting the 10‐year US treasury rate


  • Hamid Baghestani


This study compares the performance of two forecasting models of the 10-year Treasury rate: a random walk (RW) model and an augmented‐autoregressive (A‐A) model which utilizes the information in the expected inflation rate. For 1993–2008, the RW and A‐A forecasts (with different lead times and forecast horizons) are generally unbiased and accurately predict directional change under symmetric loss. However, the A‐A forecasts outperform the RW, suggesting that the expected inflation rate (as a leading indicator) helps improve forecast accuracy. This finding is important since bond market efficiency implies that the RW forecasts are optimal and cannot be improved. Copyright (C) 2009 John Wiley & Sons, Ltd.

Suggested Citation

  • Hamid Baghestani, 2010. "Forecasting the 10‐year US treasury rate," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 29(8), pages 673-688, December.
  • Handle: RePEc:jof:jforec:v:29:y:2010:i:8:p:673-688

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    References listed on IDEAS

    1. Nieto, Fabio H. & Guerrero, Victor M., 1995. "Kalman filter for singular and conditional state-space models when the system state and the observational error are correlated," Statistics & Probability Letters, Elsevier, vol. 22(4), pages 303-310, March.
    2. Víctor Guerrero & Fabio Nieto, 1999. "Temporal and contemporaneous disaggregation of multiple economic time series," TEST: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 8(2), pages 459-489, December.
    3. repec:adr:anecst:y:1987:i:6-7:p:12 is not listed on IDEAS
    4. repec:adr:anecst:y:1987:i:6-7 is not listed on IDEAS
    5. Litterman, Robert B, 1983. "A Random Walk, Markov Model for the Distribution of Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 1(2), pages 169-173, April.
    6. Litterman, Robert B, 1983. "A Random Walk, Markov Model for the Distribution of Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 1(2), pages 169-173, April.
    7. F. Javier Fernandez Macho & Andrew C. Harvey & James H. Stock, 1987. "Forecasting and Interpolation Using Vector Autoregressions with Common Trends," Annals of Economics and Statistics, GENES, issue 6-7, pages 279-287.
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    Cited by:

    1. Chai, Jian & Zhang, Zhong-Yu & Wang, Shou-Yang & Lai, Kin Keung & Liu, John, 2014. "Aviation fuel demand development in China," Energy Economics, Elsevier, vol. 46(C), pages 224-235.


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