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: | Clements Michael P., Galvo Ana Beatriz |
Keywords: | forecasting: applications |
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.