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Essay on Wavelet analysis and the European term structure of interest rates

Author

Listed:
  • Michaela M. Kiermeier

    (Faculty of Economics and Business Administration, Germany)

Abstract

We analyse the generalized, dynamic Nelson-Siegel approach including five factors to ensures the absence of arbitrage. In contrast to previous empirical analyses we define our risk factors so that they are observable and determine their significance using a series of cross sectional regressions. We then decompose the risk factors and test whether they are significant on each time scale. The results allow us to distinguish expected and unexpected components which are used in out of sample forecasts. We find good forecasting abilities of this approach; the one month forecast remains high even during times of financial market distress.

Suggested Citation

  • Michaela M. Kiermeier, 2014. "Essay on Wavelet analysis and the European term structure of interest rates," Business and Economic Horizons (BEH), Prague Development Center, vol. 9(4), pages 18-26, January.
    • Handle: RePEc:pdc:jrnbeh:v:9:y:2014:i:4:p:18-26
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    More about this item

    Keywords

    European term structure of interest rates; Wavelet analysis; factor models; cross sectional regression;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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