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Forecasting the Government Bond Term Structure in Australia

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  • Rui Chen
  • Jiri Svec
  • Maurice Peat

Abstract

type="main"> 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.

Suggested Citation

  • Rui Chen & Jiri Svec & Maurice Peat, 2016. "Forecasting the Government Bond Term Structure in Australia," Australian Economic Papers, Wiley Blackwell, vol. 55(2), pages 99-111, June.
    • Handle: RePEc:bla:ausecp:v:55:y:2016:i:2:p:99-111
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    File URL: http://hdl.handle.net/10.1111/1467-8454.12071
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    4. Tomas Björk & Bent Jesper Christensen, 1999. "Interest Rate Dynamics and Consistent Forward Rate Curves," Mathematical Finance, Wiley Blackwell, vol. 9(4), pages 323-348, October.
    5. Francis X. Diebold & Monika Piazzesi & Glenn D. Rudebusch, 2005. "Modeling Bond Yields in Finance and Macroeconomics," American Economic Review, American Economic Association, vol. 95(2), pages 415-420, May.
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    Cited by:

    1. Rui Chen & Meng Wang & Jiri Svec, 2017. "Australian Bond Excess Returns: An Asset Allocation Perspective," Australian Economic Papers, Wiley Blackwell, vol. 56(2), pages 163-173, June.

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