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Interest Rate Forecasting with Neural Networks

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  • Täppinen, Jan

Abstract

This paper compares neural networks and linear regression models in interest rate forecasting using US term structure data. The expectations hypothesis gets some extra support from the neural network model as compared to the regression model. A neural network with the whole yield curve spectre from the difference between 1 and 3-month rates to the difference between 5 and 10-year rates predicts changes in interest rates quite well. However, during 1994?1995 the neural networks (as well as the regression) fails in predicting the rising interest rates.

Suggested Citation

  • Täppinen, Jan, 1998. "Interest Rate Forecasting with Neural Networks," Discussion Papers 170, VATT Institute for Economic Research.
    • Handle: RePEc:fer:dpaper:170
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    File URL: https://www.doria.fi/handle/10024/148103
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    References listed on IDEAS

    as
    1. Hull, John & White, Alan, 1990. "Pricing Interest-Rate-Derivative Securities," The Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 573-592.
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