Does the term structure forecast
Relying on a simple general equilibrium model of the term structure, both nominal yields and real consumption growth rates can be shown to be aÂ±ne in the unobservable state variables. We can then express real consumption growth rates in terms of nominal yields rather than the unobservable state variables with the coeÂ±cients of the resultant forecasting relation being endogenously determined by the term structure model. In this sense, we use the entire term structure to forecast real consumption growth rates and provide empirical evidence consistent with the model more accurately predicting real consumption growth rates than a regression model based on the term spread.
|Date of creation:||01 Apr 2002|
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- Gregory R. Duffee, 1996.
"Estimating the price of default risk,"
Finance and Economics Discussion Series
96-29, Board of Governors of the Federal Reserve System (U.S.).
- Francis X. Diebold & Robert S. Mariano, 1994.
"Comparing Predictive Accuracy,"
NBER Technical Working Papers
0169, National Bureau of Economic Research, Inc.
- Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 253-263, July.
- Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-144, January.
- Chapman, David A., 1997. "The cyclical properties of consumption growth and the real term structure," Journal of Monetary Economics, Elsevier, vol. 39(2), pages 145-172, July.
- Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "An Intertemporal General Equilibrium Model of Asset Prices," Econometrica, Econometric Society, vol. 53(2), pages 363-384, March.
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