A comparison of tests of nonlinear cointegration with application to the predictability of US interest rates using the term structure

A comparison of tests of nonlinear cointegration with application to the predictability of US interest rates using the term structure

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Article ID: iaor2005624
Country: Netherlands
Volume: 20
Issue: 2
Start Page Number: 219
End Page Number: 236
Publication Date: Apr 2004
Journal: International Journal of Forecasting
Authors: ,
Keywords: forecasting: applications
Abstract:

We test whether there are nonlinearities in the response of short- and long-term interest rates to the spread in interest rates, and assess the out-of-sample predictability of interest rates using linear and nonlinear models. We find strong evidence of nonlinearities in the response of interest rates to the spread. Nonlinearities are shown to result in more accurate short-horizon forecasts, especially of the spread.

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