This chapter discusses what the asset-pricing literature concludes about the forecastability of interest rates. It outlines forecasting methodologies implied by this literature, including dynamic, no-arbitrage term structure models and their macro-finance extensions. It also reviews the...

Standard approaches to building and estimating dynamic term structure models rely on the assumption that yields can serve as the factors. However, the assumption is neither theoretically necessary nor empirically supported. This article documents that almost half of the variation in bond risk...

The high persistence of interest rates has important implications for the preferred method used to estimate term structure models. We study the finite-sample properties of two standard dynamic simulation methods—efficient method of moments (EMM) and indirect inference—when they are applied...

This chapter reviews some of the academic literature that links nominal and real term structures with the macroeconomy. The main conclusion is that none of our models is consistent with basic properties of nominal yields. It is difficult to explain the average shape of the nominal yield curve,...