An Error Correction Factor Model of Term Structure Slopes in International Swaps 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.
|Date of creation:||2002|
|Date of revision:|
|Contact details of provider:|| Phone: +34 913942604|
Web page: https://www.ucm.es/icae
More information through EDIRC
|Order Information:|| Postal: Facultad de Ciencias Económicas y Empresariales. Pabellón prefabricado, 1ª Planta, ala norte. Campus de Somosaguas, 28223 - POZUELO DE ALARCÓN (MADRID)|
Web: https://www.ucm.es/fundamentos-analisis-economico2/documentos-de-trabajo-del-icae Email:
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.
- 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).
- 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.
- 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 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.
- 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.
- 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.
- 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.
- Zuliu Hu, 1993. "The Yield Curve and Real Activity," IMF Working Papers 93/19, International Monetary Fund.
- 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.
- 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.
- Zuliu Hu, 1993. "The Yield Curve and Real Activity," IMF Staff Papers, Palgrave Macmillan, vol. 40(4), pages 781-806, December.
- 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.
- Gikas A. Hardouvelis, 1987. "The predictive power of the term structure during recent monetary regimes," Research Paper 8708, Federal Reserve Bank of New York.
- Tom Engsted & Ken Nyholm, 2000. "Regime shifts in the Danish term structure of interest rates," Empirical Economics, Springer, vol. 25(1), pages 1-13.
When requesting a correction, please mention this item's handle: RePEc:ucm:doicae:0222. 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: (Águeda González Abad)
If references are entirely missing, you can add them using this form.