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Combining term structure of interest rate forecasts: The Brazilian case

Author

Listed:
  • Rafael Cavalcanti de Araújo
  • Daniel Oliveira Cajueiro

    (University of Brasilia, Brazil)

Abstract

Issues like structural breaks and misspecification biases make it difficult to find a term structure of interest rates forecast model that dominates all competitors. Focusing on Brazilian data, this paper aims to identify the existence of combining methods that provide superior performance than individual models. Empirical results confirm that it is not possible to determine an individual model that consistently produces superior forecasts. Furthermore, the relative performance of these models may vary over time. The problems of using individual models may be reduced by applying forecast combining schemes. The empirical results show consistent forecast gains of combining schemes over time. In particular, the longer the forecast horizon, the greater the contribution of forecast combination.

Suggested Citation

  • Rafael Cavalcanti de Araújo & Daniel Oliveira Cajueiro, 2013. "Combining term structure of interest rate forecasts: The Brazilian case," Economia, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 14(2), pages 102-121.
    • Handle: RePEc:anp:econom:v:14:y:2013:i:2:102_121
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    Citations

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    Cited by:

    1. Gu, Rongbao & Chen, Xi & Li, Xinjie, 2014. "Chaos recognition and fractal analysis in the term structure of Shanghai Interbank Offered Rate," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 412(C), pages 101-112.
    2. Wali ULLAH & Khadija Malik BARI, 2018. "The Term Structure of Government Bond Yields in an Emerging Market," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 5-28, September.

    More about this item

    Keywords

    Interest rate; Forecast model; Combined forecast;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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