Forecasting interest rates with shifting endpoints
Article first published online: 9 OCT 2013
Copyright © 2013 John Wiley & Sons, Ltd.
Journal of Applied Econometrics
Volume 29, Issue 5, pages 693–712, August 2014
How to Cite
2014), Forecasting interest rates with shifting endpoints, J. Appl. Econ., 29, pages 693–712. doi: 10.1002/jae.2358, , , and (
- Issue published online: 29 JUL 2014
- Article first published online: 9 OCT 2013
- Manuscript Revised: 1 JUL 2013
- Manuscript Received: 16 JUL 2012
We consider forecasting the term structure of interest rates with the assumption that factors driving the yield curve are stationary around a slowly time-varying mean or ‘shifting endpoint’. The shifting endpoints are captured using either (i) time series methods (exponential smoothing) or (ii) long-range survey forecasts of either interest rates or inflation and output growth, or (iii) exponentially smoothed realizations of these macro variables. Allowing for shifting endpoints in yield curve factors provides substantial and significant gains in out-of-sample predictive accuracy, relative to stationary and random walk benchmarks. Forecast improvements are largest for long-maturity interest rates and for long-horizon forecasts. Copyright © 2013 John Wiley & Sons, Ltd.