Forecasting output growth using a DSGE-based decomposition of the South African yield curve

Gupta, Rangan; Hollander, Hylton; Steinbach, Rudi

doi:10.1007/s00181-018-1607-4

Cited by 5 publications

(6 citation statements)

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“…While most of these studies focus on stock or foreign exchange markets, few papers concentrate on sovereign debt markets, from which the term structure of interest rates (TSIR) is extracted, which in turn can be used to analyse economic forecasting. The TSIR is a credible and reliable indicator of an economic downturn, and several authors have highlighted this role (e.g., Plakandaras et al, 2017aPlakandaras et al, , 2017bPlakandaras et al, 2019;Gupta et al, 2020a;Caldeira et al, 2020). Regarding the principal components of the TSIR (level, slope and curvature), according to Umar et al (2018), among many others, any change in the level factor causes a parallel shift in the yield curve and is associated with the long-end of the yield curve.…”

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confidence: 99%

The impact of the COVID-19 outbreak on the connectedness of the BRICS’s term structure

Jareño

Escribano

Umar

2023

Humanit Soc Sci Commun

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This study aims to examine the impact of the different waves of the COVID-19 pandemic on the connectedness of the BRICS (Brazil, Russia, India, China, and South Africa) term structure of interest rates and its components (level, slope and curvature). For that purpose, this research applies the time-varying parameter vector autoregression (TVP-VAR) approach in order to assess the direction of spillovers among countries and factors and measure their contribution to the connectedness system. Our results show that the total connectedness measure changes over time, and the level and curvature components show connectedness that persists longer than the slope component, both in the first wave of the COVID-19 pandemic. Brazil and South Africa would appear as net transmitters of shocks, whereas China and India are net receivers. Finally, the most significant differences in the net dynamic connectedness between transmitters and receivers were focused on before and during the first wave of the COVID-19 pandemic crisis. Some additional impacts were observed during the last waves of the coronavirus pandemic. To our best knowledge, this is the first study on the connectedness between the yield curves of the BRICS economies and the COVID-19 crisis uncertainty according to the coronavirus MCI, by decomposing the yield curve into its factors (level, slope, and curvature).

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confidence: 99%

The impact of the COVID-19 outbreak on the connectedness of the BRICS’s term structure

Jareño

Escribano

Umar

2023

Humanit Soc Sci Commun

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“…In other words, the gap between short-term and long-term interest rate became narrower before economic recession and wider preceding an economic expansion. Recent studies have examined the relationship between the term structure of interest rates or the yield curve and major economic fundamentals, such as growth in output, inflation, investment, consumption, the monetary policy stance of central banks, and other macro-finance variables (Hännikäinen 2017;Gupta et al 2020).…”

Section: Literaturementioning

confidence: 99%

The Relationship between Yield Curve and Economic Activity: An Analysis of G7 Countries

Kumar

Stauvermann

2021

JRFM

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The yield curve is an important tool to assess the economic progress of a country. In this study, we examine the strength of the relationship between term spread and economic activity, and between the components of the yield curve and economic activity in the G7 countries using monthly data on yield rates and seasonally adjusted data on the industrial production index (IPI). After matching the start and end date of the IPI with the yield rates, the data used and respective time period are as follows: Canada: Mar-1994 to Dec-2018, France: Jan-1999 to Dec-2018, Germany: Oct-2005 to Dec-2018, Italy: Jul-2009 to Dec-2018, Japan: Jul-1994 to Jan–2019, the UK: Jan-1994 to Dec-2018, and the US: Feb-1990 to Jan-2019. The results show positive associations between term spread and economic activity for Canada, France, Germany, Japan, the UK, and the US. For Italy, a negative association is noted. All three empirical factors could predict economic activity for France and Germany at the 12-month horizon only. For all other horizons, the factors’ ability to predict economic activity varies. We observe that by including additional macro-finance variables such as the current economic growth rate and the 3-month yield rate to capture the term structure level effects, the relationship between term spread and economic activity becomes stronger. This implies that the usefulness of yield curve and its decomposed components for the purpose of predicting economic activity should be cautiously modelled and employed for policy.

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“…There exists a large number of studies that has highlighted the role played by the term-structure of interest rates as a leading indicator of economic recessions and inflation for both developed and emerging economies (see, Plakandaras et al , 2017b,a;Gupta et al , 2018;Aye et al , 2019;Plakandaras et al , 2019, for detailed reviews in this regard). At the same time, movements in the term-structure of interest rates serve as a valuable input for practioners in finance to carry out bond portfolio management, derivatives pricing, and risk management (Caldeira et al , 2016a).…”

Section: Introductionmentioning

confidence: 99%

Forecasting the Term Structure of Interest Rates of the BRICS: Evidence from a Nonparametric Functional Data Analysis

Caldeira

Gupta

Suleman

et al. 2020

Emerging Markets Finance and Trade

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In this paper, we develop a non-parametric functional data analysis (NP-FDA) model to forecast the term-structure of Brazil, Russia, India, China and South Africa (BRICS). We use daily data over the period of January 1, 2010 to December 31, 2016. We find that, while it is in general difficult to beat the random-walk model in the shorter-horizons, at longer-runs our proposed NP-FDA approach outperforms not only the random-walk model, but also other popular competitors used in term-structure forecasting literature. Our results have important implications for both policymakers aiming to stabilize the economy, and for optimal portfolio allocation decisions of financial market agents.

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Forecasting output growth using a DSGE-based decomposition of the South African yield curve

Cited by 5 publications

References 50 publications

The impact of the COVID-19 outbreak on the connectedness of the BRICS’s term structure

The impact of the COVID-19 outbreak on the connectedness of the BRICS’s term structure

The Relationship between Yield Curve and Economic Activity: An Analysis of G7 Countries

Forecasting the Term Structure of Interest Rates of the BRICS: Evidence from a Nonparametric Functional Data Analysis

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