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Forecasting the Term Structure of South African Government Bond Yields

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  • Hui-Chu Shu
  • Jung-Hsien Chang
  • Ting-Ya Lo

Abstract

This article uses the parsimonious dynamic Nelson–Siegel model to fit the yields of South African government bonds. We find that the dynamic Nelson–Siegel model has good fitting abilities for all maturities. We further forecast the term structure by seven different dynamic Nelson–Siegel models with time series models. We find that the DNS–VAR–GARCH model is useful for forecasting the short-term rates, the DNS–VAR best predicts the medium-term rates, and the DNS–RW best predicts the long-term rates. In addition, the dynamic Nelson–Siegel models provide better forecasts of yield data than a random walk model, especially for the 12-month forecasting horizons.

Suggested Citation

  • Hui-Chu Shu & Jung-Hsien Chang & Ting-Ya Lo, 2018. "Forecasting the Term Structure of South African Government Bond Yields," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(1), pages 41-53, January.
  • Handle: RePEc:mes:emfitr:v:54:y:2018:i:1:p:41-53
    DOI: 10.1080/1540496X.2016.1225572
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    Cited by:

    1. Johannes W. Fedderke, 2021. "The South African–United States sovereign bond spread and its association with macroeconomic fundamentals," South African Journal of Economics, Economic Society of South Africa, vol. 89(4), pages 499-525, December.
    2. João Frois Caldeira & Rangan Gupta & Muhammad Tahir Suleman & Hudson S. Torrent, 2021. "Forecasting the Term Structure of Interest Rates of the BRICS: Evidence from a Nonparametric Functional Data Analysis," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 57(15), pages 4312-4329, December.
    3. Johannes W. Fedderke, 2020. "Is the Phillips curve framework still useful for understanding inflation dynamics in South Africa," Working Papers 10142, South African Reserve Bank.
    4. Carlos Castro-Iragorri & Juan Felipe Peña & Cristhian Rodríguez, 2021. "A Segmented and Observable Yield Curve for Colombia," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 10(2), pages 179-200.

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