In this paper, I introduce extensions on the dynamic NelsonSiegel (DNS) framework for forecasting the yield-curve. These extensions regard time-varying volatility and including macroeconomic variables in the estimation of the beta’s, which determine the forecasts of the yield-curve. I make forecast with all different models on different forecasting horizons, using both an extending out-of sample window and a moving out-of sample window. I assess the forecasts by their root mean squared error and I compare the forecasts of the different models against the DNS framework with the Diebold-Mariano test for equal prediction accuracy. The results show that the models which capture time-varying volatility produce better forecasts in almost all circumstances. Moreover, using a moving out-of sample window lead to better forecasts as well.

Additional Metadata
Keywords Nelson-Siegel curve, Yield curve, Forecasting, ARCH
Thesis Advisor Dijk, D.J.C. van
Persistent URL
Series Econometrie
Esch, J.C.M. van (Joost). (2017, August 10). Forecasting the term structure interest rate of government bond yields. Econometrie. Retrieved from