Predicting Output Using The Entire Yield Curve
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Predicting Output Using The Entire Yield Curve
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Author : Azamat Abdymomunov
language : en
Publisher:
Release Date : 2011
Predicting Output Using The Entire Yield Curve written by Azamat Abdymomunov and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011 with categories.
Many studies find that yields for government bonds predict real economic activity. Most of these studies use the yield spread, defined as the difference between two yields of specific maturities, to predict output. In this paper, I propose a different approach that makes use of information contained in the entire term structure of U.S. Treasury yields to predict U.S. real GDP growth. My proposed dynamic yield curve model produces better out-of-sample forecasts of real GDP than those produced by the traditional yield spread model. The main source of this improvement is in the dynamic approach to constructing forecasts versus the direct forecasting approach used in the traditional yield spread model. Although the predictive power of the yield curve for output is concentrated in the yield spread, there is also a gain from using information in the curvature factor for the real GDP growth prediction.
The Yield Curve And Real Activity
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Author : Zuliu Hu
language : en
Publisher: International Monetary Fund
Release Date : 1993-03
The Yield Curve And Real Activity written by Zuliu Hu and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 1993-03 with Business & Economics categories.
The financial press frequently suggest that the shape of yield curve reflects information about the prospects of the economy. This paper attempts to formalize the link between the yield curve and the real economic activity. A closed-form formula for the term structure of interest rates is derived. It is shown that the term structure embodies the market’s expectation about changes in the macroeconomic fundamental--the growth in real aggregate output of the economy. The paper then documents the use of bond market data for predicting GDP growth in the G-7 industrial countries. The results suggest that a simple measure of the slope of the yield curve, namely the yield spread, serves as a good predictor of future economic growth. The out-of-sample forecasting performance of the yield spread compares favorably with that of the alternative stock price-based model and a univariate time series (ARMA) model. One practical implication is that it may be useful to add some measure of the term structure to the list of
Does The Yield Curve Predict Output
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Author : Joseph Gerard Haubrich
language : en
Publisher:
Release Date : 2020
Does The Yield Curve Predict Output written by Joseph Gerard Haubrich and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2020 with categories.
Does the yield curve have the ability to predict output and recessions? At some times and in certain places, of course! But many details are matters of dispute: When and where does the yield curve predict successfully, which aspects of the curve matter most, and which economic forces account for the predictive ability? Over the years, an increasingly sophisticated set of tools, both statistical and theoretical, have addressed these issues. For the US, an inverted yield curve, particularly when the spread between the yield on 10-year and 3-month Treasuries becomes negative, has been a robust indicator of recessions in the post-World War Two period. The spread also predicts future real GDP growth for the US, although the forecast ability varies by time period, in ways that appear to depend on monetary policy. The evidence is less clear in other countries, but the yield curve shows some predictive ability for the UK and Germany, among others.
Yield Curve Modeling And Forecasting
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Author : Francis X. Diebold
language : en
Publisher: Princeton University Press
Release Date : 2013-01-15
Yield Curve Modeling And Forecasting written by Francis X. Diebold and has been published by Princeton University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013-01-15 with Business & Economics categories.
Understanding the dynamic evolution of the yield curve is critical to many financial tasks, including pricing financial assets and their derivatives, managing financial risk, allocating portfolios, structuring fiscal debt, conducting monetary policy, and valuing capital goods. Unfortunately, most yield curve models tend to be theoretically rigorous but empirically disappointing, or empirically successful but theoretically lacking. In this book, Francis Diebold and Glenn Rudebusch propose two extensions of the classic yield curve model of Nelson and Siegel that are both theoretically rigorous and empirically successful. The first extension is the dynamic Nelson-Siegel model (DNS), while the second takes this dynamic version and makes it arbitrage-free (AFNS). Diebold and Rudebusch show how these two models are just slightly different implementations of a single unified approach to dynamic yield curve modeling and forecasting. They emphasize both descriptive and efficient-markets aspects, they pay special attention to the links between the yield curve and macroeconomic fundamentals, and they show why DNS and AFNS are likely to remain of lasting appeal even as alternative arbitrage-free models are developed. Based on the Econometric and Tinbergen Institutes Lectures, Yield Curve Modeling and Forecasting contains essential tools with enhanced utility for academics, central banks, governments, and industry.
Modeling And Forecasting Canadian Yield Curve With Macroeconomic Determinants
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Author : Di Huo
language : en
Publisher:
Release Date : 2007
Modeling And Forecasting Canadian Yield Curve With Macroeconomic Determinants written by Di Huo and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with Economic forecasting categories.
Term structure of interest rates is crucial for pricing bonds and managing financial risks. The yield curve of zero-coupon bonds can typically be used to measure the term structure of interest rates. In this paper, we use the popular Nelson-Siegel three-factor framework to model the entire Canadian yield curve. The empirical results show that the model fits the Canadian yield curve well. We estimate vector autoregressive models for the three factors in order to produce out-of-sample forecasts, and also employ seven natural competitors for comparison. Our forecast results are encouraging. Our model is superior to most competitors, especially at longer horizons. We further incorporate macro variables into the yield-only model. From the results of forecast comparison test between the yield-only model and yield-macro model, we conclude that a joint dynamic term structure model incorporating macro variables contributes to sharpening our ability of forecasting yields accurately out of sample.
Yield Curve And Recession Forecasting In A Machine Learning Framework
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Author : Periklis Gogas
language : en
Publisher:
Release Date : 2019
Yield Curve And Recession Forecasting In A Machine Learning Framework written by Periklis Gogas and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
In this paper, we investigate the forecasting ability of the yield curve in terms of the U.S. real GDP cycle. More specifically, within a Machine Learning (ML) framework, we use data from a variety of short (treasury bills) and long term interest rates (bonds) for the period from 1976:Q3 to 2011:Q4 in conjunction with the real GDP for the same period, to create a model that can successfully forecast output fluctuations (inflation and output gaps) around its long-run trend. We focus our attention in correctly forecasting the instances of output gaps referred for the purposes of our analysis here as recessions. In this effort, we applied a Support Vector Machines (SVM) technique for classification. The results show that we can achieve an overall forecasting accuracy of 66,7% and a 100% accuracy in forecasting recessions.
Why Does The Yield Curve Predict Economic Activity
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Author : Frank Smets
language : en
Publisher:
Release Date : 1997
Why Does The Yield Curve Predict Economic Activity written by Frank Smets and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1997 with Economic forecasting categories.
Forecasting The Term Structure Of Government Bond Yields
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Author : Francis X. Diebold
language : en
Publisher:
Release Date : 2003
Forecasting The Term Structure Of Government Bond Yields written by Francis X. Diebold and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003 with Government securities categories.
Despite powerful advances in yield curve modeling in the last twenty years, comparatively little attention has been paid to the key practical problem of forecasting the yield curve. In this paper we do so. We use neither the no-arbitrage approach, which focuses on accurately fitting the cross section of interest rates at any given time but neglects time-series dynamics, nor the equilibrium approach, which focuses on time-series dynamics (primarily those of the instantaneous rate) but pays comparatively little attention to fitting the entire cross section at any given time and has been shown to forecast poorly. Instead, we use variations on the Nelson-Siegel 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 may be interpreted as factors corresponding to level, slope and curvature, and that they may be estimated with high efficiency. We propose and estimate autoregressive models for the factors, and we show that our models are consistent with a variety of stylized facts regarding the yield curve. We use our models to produce term-structure forecasts at both short and long horizons encouraging results. In particular, our forecasts appear much more accurate at long horizons than various standard benchmark forecasts.
How Stable Is The Forecasting Performance Of The Yield Curve For Output Growth
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Author : Raffaella Giacomini
language : en
Publisher:
Release Date : 2007
How Stable Is The Forecasting Performance Of The Yield Curve For Output Growth written by Raffaella Giacomini and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with categories.
We provide an extensive evaluation of the predictive performance of the US yield curve for US gross domestic product growth by using new tests for forecast breakdown, in addition to a variety of in-sample and out-of-sample evaluation procedures. Empirical research over the past decades has uncovered a strong predictive relationship between the yield curve and output growth, whose stability has recently been questioned. We document the existence of a forecast breakdown during the BurnsMiller and Volker monetary policy regimes, whereas during the early part of the Greenspan era the yield curve emerged as a more reliable model to predict future economic activity.
The Slope And The Curvature Of The Yield Curve In Recession Forecasting
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Author : Periklis Gogas
language : en
Publisher:
Release Date : 2019
The Slope And The Curvature Of The Yield Curve In Recession Forecasting written by Periklis Gogas and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
In this paper, we investigate the ability of two popular models to forecast the deviation of GDP from its long-run trend, i.e. inflationary and output gaps. In doing so, we exploit the information provided by the yield curve that is documented in the literature as a good predictor of economic activity. We combine and train our forecasting model using interest rates from Treasury Bills and Government Bond rates for the period 1976Q3 to 2011Q4, in conjunction with the quarterly real seasonally adjusted GDP for the same period. Our results show that we can achieve an overall forecasting accuracy of 80% on out-of-sample data. However, our main focus in this paper is to construct a forecasting model for the recessions. Perfect accuracy in recession forecasting is achieved in more than one of the created models. The forecasting performance of our model strengthens the conviction that the yield curve can be a useful and accurate predictive tool.