Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
7365561 | Journal of International Money and Finance | 2016 | 23 Pages |
Abstract
In this paper we investigate whether information in credit spreads helps improve the forecasts of government bond yields. To do this, we propose and estimate a joint dynamic Nelson-Siegel (DNS) model of the U.S. Treasury yield curve and the credit spread curve. The model accounts for the possibility of regime changes in yield curve dynamics and incorporates a zero lower bound constraint on yields. We show that our joint model produces more accurate out-of-sample density forecasts of bond yields than does the yield-only DNS model. In addition, we demonstrate that incorporating regime changes and a zero lower bound constraint is essential for forecast improvements.
Keywords
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Azamat Abdymomunov, Kyu Ho Kang, Ki Jeong Kim,