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Forecasting the term structure of the Euro Market using Principal Component Analysis
Código: WPE – 233
Marcelo L. Moura
We forecast the monthly Euro Interest Rate Swap Curve with an autoregressive principal component model. We compare its predictability accuracy against the Diebold and Li’s dynamic Nelson Siegel, the auto-regressive direct regression of the yield levels and the random walk model. After a robust set of specifications and regression windows, we conclude that our proposed model achieve forecasts that signi cantly outperform the competitor models, mainly for short run horizons.