| Title | Forecasting the Yield Curve in a Data-Rich Environment using the Factor-Augmented Nelson-Siegel Model |
|---|---|
| Published in | Report / Econometric Institute, Erasmus University Rotterdam, p.1-40. ISSN 1566-7294. |
| Author | Exterkate, P. P. (Peter); Dijk, van D.J.C. (Dick); Heij, C. (Christiaan); Groenen, P.J.F. (Patrick) |
| Date | 2010-02-23 |
| Language | English |
| Type | working paper |
| Publisher | Econometric Institute |
| Abstract | Various ways of extracting macroeconomic information from a data-rich environment are compared with the objective of forecasting yield curves using the Nelson-Siegel model. Five issues in factor extraction are addressed, namely, selection of a subset of the available information, incorporation of the forecast objective in constructing factors, specification of a multivariate forecast objective, data grouping before constructing factors, and selection of the number of factors in a data-driven way. Our empirical results show that each of these features helps to improve forecast accuracy, especially for the shortest and longest maturities. The data-driven methods perform well in relatively volatile periods, when simpler models do not suffice. |
| Publication | http://hdl.handle.net/1765/18254 |
| Persistent Identifier | urn:NBN:nl:ui:15-1765/18254 |
| Metadata | XML |
| Repository | Erasmus University Rotterdam |
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