Title: Forecasting the yield curve with macroeconomic information - evidence from European markets

Authors: Isabel Maldonado; Carlos Pinho; Francisco Rodríguez De Prado; Carla Azevedo Lobo

Addresses: Research on Economics, Management and Information Technologies (REMIT), Portucalense University, Porto, Portugal; Governance Competitiveness and Public Policies (GOVCOPP), University of Aveiro, Aveiro, Portugal ' Governance Competitiveness and Public Policies (GOVCOPP), Department of Economics Management and Industrial Engineering, University of Aveiro, 3810-193 Aveiro, Portugal ' Department of Financial Economics and Accounting, University of Vigo, Lagoas Marcosende, 36310 Vigo, Spain ' Research on Economics, Management and Information Technologies (REMIT), Department of Economics and Management, University Portucalense, Porto, Portugal

Abstract: In this paper we analyse the predictive content of the introduction of macroeconomic variables in term structure dynamic models. We tested the dynamic models using data from the public debt, inflation rate and annual variation of the industrial production index for four European countries: Portugal, Spain, the UK and Germany. Results obtained for the period from January 1990 to December 2012 indicate that considering macroeconomic factors makes a positive contribution to the improvement of forecasts for different countries and maturities. However, the paper presents evidence of time-varying forecast accuracy, not only across yield maturities and forecast horizons, but also over data sub-periods.

Keywords: yield curve; dynamic factor models; forecasting; out-of-sample forecasting evaluations.

DOI: 10.1504/IJBAAF.2021.114478

International Journal of Banking, Accounting and Finance, 2021 Vol.12 No.2, pp.177 - 200

Accepted: 02 Nov 2019
Published online: 01 Mar 2021 *

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