Essays on forecasting interest rates, economic activity and in ation, based on factor models of the yield curve

Abstract

The aim of the thesis is to provide new insights into the forecasting ability of the term structureof interest rates about future interest rate movements, real consumption growth, economicactivity and in ation. After a brief review in term structure modeling, the thesis presents fourstudies in order to shed some light into these issues.In particular, it consists of four essays entitled: "Term spread regressions of the rationalexpectations hypothesis of the term structure allowing for risk premium e¤ects", "Real termstructure forecasts of consumption growth", "Forecasting economic activity from yield curvefactors", and "Forecasting in ation from the term structure and the in ation risk premia ef-fects".The thesis provides a number of interesting results for academics and practitioners. First, itshows that term premium e¤ects can explain the puzzles of Expectations Hypothesis to forecastfuture movements of interest rates. Second, the forecasting ability of the spread and the short-term rate in future real consumption growth can be attributed to two common factors spanningthe real term structure. Third, the curvature factor contains important information about theeconomic growth in short-term, independently of the slope factor. Fourth, the in ation riskpremium can a¤ect the forecasting ability of the term spread about future in ation in theshort-term.