Forecasting the Government Bond Term Structure in Australia

13 Pages Posted: 3 Jun 2016

See all articles by Rui Chen

Rui Chen

Central University of Finance and Economics (CUFE)

Jiri Svec

The University of Sydney - Discipline of Finance

Maurice Peat

The University of Sydney; Financial Research Network (FIRN)

Date Written: June 2016

Abstract

In this paper, we evaluate the performance of the dynamic Nielsen and Siegel interest rate model in forecasting Australian government bond yields. We compare a two‐stage OLS estimation procedure to a more powerful and robust state‐space framework estimated via a Kalman filter. We show that the one‐step approach generates smaller forecast errors than the two‐step procedure or a benchmark random walk model when forecasting the Australian government term structure across various horizons.

JEL Classification: C53, E43, E47

Suggested Citation

Chen, Rui and Svec, Jiri and Peat, Maurice, Forecasting the Government Bond Term Structure in Australia (June 2016). Australian Economic Papers, Vol. 55, Issue 2, pp. 99-111, 2016, Available at SSRN: https://ssrn.com/abstract=2788264 or http://dx.doi.org/10.1111/1467-8454.12071

Rui Chen (Contact Author)

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Jiri Svec

The University of Sydney - Discipline of Finance ( email )

P.O. Box H58
Sydney, NSW 2006
Australia
+61 2 9036 6241 (Phone)

Maurice Peat

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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