Forecasts of US short-term interest rates: A flexible forecast combination approach

Massimo Guidolin, Allan Timmermann

Research output: Contribution to journalArticlepeer-review

Abstract

This paper develops a flexible approach to combine forecasts of future spot rates with forecasts from time-series models or macroeconomic variables. We find empirical evidence that, accounting for both regimes in interest rate dynamics, and combining forecasts from different models, helps improve the out-of-sample forecasting performance for US short-term rates. Imposing restrictions from the expectations hypothesis on the forecasting model are found to help at long forecasting horizons. © 2008 Elsevier B.V.
Original languageEnglish
Pages (from-to)297-311
Number of pages14
JournalJournal of Econometrics
Volume150
Issue number2
DOIs
Publication statusPublished - Jun 2009

Keywords

  • Expectations hypothesis
  • Forecast combinations
  • Regime switches
  • Short term interest rates

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