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Working Paper 2005-059C

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"Forecasts of US Short-term Interest Rates: A Flexible Forecast Combination Approach"
by Massimo Guidolin, and Allan Timmermann

This paper develops a flexible approach to combine forecasts of future spot rates with forecasts from time-series models or macroeconomic variables. We find empirical evidence that accounting for both regimes in interest rate dynamics and combining forecasts from different models helps improve the out-of-sample forecasting performance for US short-term rates. Imposing restrictions from the expectations hypothesis on the forecasting model are found to help at long forecasting horizons.

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Category > Applied Econometrics
Category > Finance
Category > Monetary Policy/Macroeconomics
Author > Massimo Guidolin