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Dynamic correlations and forecasting of term structure slopes in eurocurrency market

Domínguez, Emilio and Novales Cinca, Alfonso (2002) Dynamic correlations and forecasting of term structure slopes in eurocurrency market. [ Documentos de trabajo del Instituto Complutense de Análisis Económico (ICAE); nº 0226, 2002, ]

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Abstract

Using monthly data on Euro-rates for 1979-1998, we examine the extent to which crosscountry
information on term structure slopes can be used to improve upon univariate slope forecasts.
This is interesting from the point of view of forecasting economic activity, since term structure slopes
are known to anticipate fluctuations in the real economy. Additionally, the Expectations Hypothesis
states that the term structure slope summarizes the available information which is relevant for
forecasting future short-term interest rates, so that improved slope forecasts might also lead to better
forecasts of future interest rates. We find ample evidence of significant explanatory power in term
structure slopes across countries. Besides, we document that this information content leads to improved
forecasts of the term structure slope in some countries, using a foreign slope as indicator.


Item Type:Working Paper or Technical Report
Additional Information:

JEL Classification: E37, E43

Uncontrolled Keywords:Term structure of interest rates, Term structure slope, Expectations hypothesis, Eurocurrencies
Subjects:Social sciences > Economics > Macroeconomics
Series Name:Documentos de trabajo del Instituto Complutense de Análisis Económico (ICAE)
Volume:2002
Number:0226
ID Code:7688
References:

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Domínguez, E., and A.Novales, 2000, Term structure relationships across countries in the eurocurrency markets, manuscript, Universidad Complutense, Madrid.

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Deposited On:04 Mar 2008
Last Modified:06 Feb 2014 07:55

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