Over recent years, patterns in yield data have proven to raise difficulties in modelling them. Levels of yields are currently at a lower bound and are very persistent. However, many developments have taken place into the modelling techniques of these yields in the past few years. This paper investigates if a Bayesian estimation of a term structure model can be improved by adding Macro-Economic Factors to the model. Both a simulation and empirical study were used to access the performance of the model. The simulation study was not able to generate stable results for the model with economic variables. For the empirical study, a dataset on Euribor yield data from 2008 to 2017 were used. It shows that the extension of the parameter space leads to stable results when some tuning parameters are used. Nonetheless, the economic variables add an improvement to the forecasting of yields and are able to predict changing patterns in the yield curve when extreme scenarios are considered at a one year horizon

Wel, M. van der
hdl.handle.net/2105/47055
Econometrie
Erasmus School of Economics

Wijshoff, K.A. (2019, April 3). Calibrating Bayesian risk scenarios of interest rates with the help of Macro-Economic Factors. Econometrie. Retrieved from http://hdl.handle.net/2105/47055