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Yield Curve Predictability, Regimes, and Macroeconomic Information: A Data-Driven Approach

Author

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  • Francesco Audrino
  • Kameliya Filipova

Abstract

We propose an empirical approach to determine the various economic sources driving the US yield curve. We allow the conditional dynamics of the yield at different maturities to change in reaction to past information coming from several relevant predictor variables. We consider both endogenous, yield curve factors and exogenous, macroeconomic factors as predictors in our model, letting the data themselves choose the most important variables. We find clear, different economic patterns in the local dynamics and regime specification of the yields depending on the maturity. Moreover, we present strong empirical evidence for the accuracy of the model in fitting in-sample and predicting out-of-sample the yield curve in comparison to several alternative approaches.

Suggested Citation

  • Francesco Audrino & Kameliya Filipova, 2009. "Yield Curve Predictability, Regimes, and Macroeconomic Information: A Data-Driven Approach," University of St. Gallen Department of Economics working paper series 2009 2009-10, Department of Economics, University of St. Gallen.
    • Handle: RePEc:usg:dp2009:2009-10
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    More about this item

    Keywords

    Yield curve modeling and forecasting; Macroeconomic variables; Tree-structured models; Threshold regimes; GARCH; Bagging;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • 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

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