17 Pages Posted: 25 Jan 2008
Date Written: December 8, 2007
This paper proposes to use No-Arbitrage Affine Term Structure Models as prior information on a Vector Autoregression (VAR) of yields. We evaluate the forecasting performance of the proposed approach against alternative models such as an unrestricted VAR and a Random Walk. As a result, we show that using No-Arbitrage restrictions leads to significant improvements in forecasting the yield curve.
Keywords: Bayesian methods, Interest rate forecasting, Essentially Affine Term Structure Models, Vector Autoregression Models
Suggested Citation: Suggested Citation
Kaminska, Iryna and Carriero, Andrea, No-Arbitrage Restrictions and Yield Curve Forecasting (December 8, 2007). Available at SSRN: https://ssrn.com/abstract=1086405 or http://dx.doi.org/10.2139/ssrn.1086405