An "Information Sets," Approach to Forecasting Bond Yields in Asia-Pacific
24 Pages Posted: 31 May 2006
Date Written: August 2005
This paper tests for effects from domestic and international macroeconomic developments on the determination of nominal long-term interest rates in Asia-Pacific bond Markets. We show that well specified equations can be estimated which confirm the importance of domestic as well as international macroeconomic developments in the evolution of long-term interest rates. The results are contrary to those that one would expect from standard finance theory and are partly due to our econometric methodology, which exploits the non-stationarity and cointegration features of the data, in a way that is not typical in the literature. The results show that by including fundamentals in interest rate equations we get well fitted relationships with better forecasting properties than the type of simple time series models often employed in the finance literature.
Keywords: Bond Markets, Macroeconomic Factors, Asia Pacific, Cointegration and Forecasting
JEL Classification: E43, E44, E37, F47, G12
Suggested Citation: Suggested Citation