Please use this identifier to cite or link to this item: http://scholarbank.nus.edu.sg/handle/10635/139002
Title: A Dynamic Nelson-Siegel Factor Model with Financial System Indicators.
Authors: Chin Han Wei Jarrett
Keywords: macro-finance, forecasting exercise, financial system indicators, dynamic Nelson-Siegel factor model, credit spread modelling, real GDP growth
Issue Date: 6-Nov-2017
Citation: Chin Han Wei Jarrett (2017-11-06). A Dynamic Nelson-Siegel Factor Model with Financial System Indicators.. ScholarBank@NUS Repository.
Abstract: After the global financial crisis and the subsequent recession, given the nascent macro-finance literature, the interactions between macroeconomics and financial markets grow more important. A related question is how interest rates affect real GDP. I explore this interaction via a forecasting exercise. First, I use a vector autoregressive model with financial system indicators within the dynamic Nelson-Siegel framework to forecast interest rates. Then, I extend the analysis to credit spread modelling, after which I investigate whether credit spreads forecasted using the dynamic Nelson-Siegel factor model, in a contemporaneous regression with real GDP growth, beat the benchmark autoregressive model in real GDP growth and autoregressive distributed lag models in forecasting real GDP growth. I found that the proposed vector autoregressive model was able to generate good yield forecasts, and also produced credit spread forecasts ranked second to the dynamic Nelson-Siegel autoregressive factor model in forecasting real GDP growth.
URI: http://scholarbank.nus.edu.sg/handle/10635/139002
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