Are levels effects important in out-of-sample performance of short rate models?

Authors

Sandy Suardi, University of WollongongFollow

RIS ID

97923

Publication Details

Suardi, S. (2008). Are levels effects important in out-of-sample performance of short rate models?. Economics Letters, 99 (1), 181-184.

Abstract

This paper derives short-term interest rate volatility forecasts from various interest rate models. While models that specify both GARCH and levels effects are superior in their forecasts accuracy, they systematically under predict interest rate volatility more frequently than simple short rate models.