Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2007-06-11
Number: 07-043/4
Author-Name: Michiel De Pooter
Author-Email: depooter@few.eur.nl
Author-Workplace-Name: Erasmus Universiteit Rotterdam
Title: Examining the Nelson-Siegel Class of Term Structure Models
Abstract: In this paper I examine various extensions of the Nelson and Siegel (1987) model with the purpose of fitting and forecasting the term structure of interest rates. As expected, I find that using more flexible models leads to a better in-sample fit of the term structure. However, I show that the out-of-sample predictability improves as well. The four-factor model, which adds a second slope factor to the three-factor Nelson-Siegel model, forecasts particularly well. Especially with a one-step state-space estimation approach the four-factor model produces accurate forecasts and outperforms competitor models across maturities and forecast horizons. Subsample analysis shows that this outperformance is also consistent over time.
Classification-JEL: E4; C5; C32
Keywords: Term structure of interest rates; Nelson-Siegel; Svensson; Forecasting; State-space model
File-Url: https://papers.tinbergen.nl/07043.pdf
File-Format: application/pdf
File-Size: 867067 bytes
Handle: RePEc:tin:wpaper:20070043