Forecasting Models

Diebold, F.X. and Li, C. (2006), ARTICLE IN Term Structure of Government arrogate give backs, portent the PRESS Journal of Econometrics, 130, 337-364. Journal of Econometrics 130 (2006) 337364 www.elsevier.com/ station/jeconom Forecasting the term social organisation of government attachment yields Francis X. Diebolda,b, Canlin Lic,Ã a Department of Economics, University of Pennsylvania, 3718 Locust Walk, Philadelphia, PA 19104-6297, USA b NBER, 1050 Massach go fortts Ave., Cambridge, MA 02138, USA c A. Gary Anderson Graduate indoctrinate of Management, University of California, Riverside, CA 92521, USA received 21 March 2005 visible(prenominal) online 23 May 2005 Abstract despite powerful advances in yield curve modeling in the last 20 years, comparatively little attention has been paid to the recognize possible problem of forecasting the yield curve. In this radical we do so. We custom neither the no-arbitrage approach nor the equili brium approach. Instead, we use variations on the NelsonSiegel exponential components framework to model the entire yield curve, period-by-period, as a three-dimensional parameter evolving dynamically. We show that the three time-varying parameters whitethorn be interpreted as factors corresponding to level, slope and curvature, and that they may be estimated with high ef?ciency.

We propose and estimate autoregressive models for the factors, and we show that our models are concordant with a variety of stylized facts regarding the yield curve. We use our models to assign term-structure forecasts at both sho rt and long horizons, with load-bearing(a) ! results. In particular, our forecasts get on much more faultless at long horizons than various measuring stick benchmark forecasts. r 2005 Published by Elsevier B.V. JEL classi?cation: G1; E4; C5 Keywords: Term structure; Yield curve; Factor model; NelsonSiegel curve ÃCorresponding author. electronic mail addresses: fdiebold@sas.upenn.edu (F.X. Diebold), canlin.li@ucr.edu (C. Li). 0304-4076/$ - see front matter...If you want to get a passable essay, order it on our website: OrderCustomPaper.com

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