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...

From a macroeconomic perspective, the short-term interest rate is a policy instrument under the direct control of the central bank. From a finance perspective, long rates are risk-adjusted averages of expected future short rates. Thus, as illustrated by much recent research, a joint...

We estimate a model with latent factors that summarize the yield curve (namely, level, slope, and curvature) as well as observable macroeconomic variables (real activity, inflation, and the stance of monetary policy). Our goal is to provide a characterization of the dynamic interactions between...

The purpose of this study is to estimate the natural yield curve for an emerging economy, with Indonesia as a case study. The estimation is done by a two-stage approach, namely, the decomposition of the yield curve component through a dynamic Nelson-Siegel model, the results of which are then...

Geostatistical spatial models are widely used in many applied fields to forecast data observed on continuous three-dimensional surfaces. We propose to extend their use to finance and, in particular, to forecasting yield curves. We present the results of an empirical application where we apply...

This paper proposes a forecasting model that combines a factor augmented VAR (FAVAR) methodology with the Nelson and Siegel (NS) parametrization of the yield curve to predict the Brazilian term structure of interest rates. Importantly, we extract the principal components for the FAVAR from a...