Publication: Dynamic correlations and forecasting of term structure slopes in eurocurrency market
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Publication Date
2002
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Instituto Complutense de Análisis Económico. Universidad Complutense de Madrid
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.
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UCM subjects
Macroeconomía
Unesco subjects
5307.14 Teoría Macroeconómica
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Citation
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