Abstract
This study aims to test the feasibility of using a data set of 90-day bank bill forward rates from the Australian market to predict spot interest rates. To achieve this goal I utilised the application of Kalman filter in a state space model with time-varying state variable. It is documented that in the case of short-term interest rates,the state space model yields robust predictive power. In addition, this predictive power of implied forward rate is heavily impacted by the existence of a time-varying risk premium in the term structure.
| Original language | English |
|---|---|
| Pages (from-to) | 1-15 |
| Number of pages | 16 |
| Journal | Journal of Management Sciences |
| Volume | 1 |
| Issue number | 1 |
| DOIs | |
| Publication status | Published - 2014 |
| Externally published | Yes |