Forecasting the yield curve for the Eurozone and USA using standard methods and machine learning approach

This paper investigates forecasting yield curve parameters using the Svensson model for the Eurozone and US markets, applying random walk, autoregressive, vector autoregression, and random forest models. Forecast accuracy was assessed using root mean square error over 1-day, 6-day, and 12-day horizons, and performance was compared using the Diebold-Mariano test. Results indicate that the random walk model consistently provided the most accurate forecasts, particularly for the level and slope of the yield curve. Autoregressive and vector autoregression models performed well for short-term forecasts, while random forest showed mixed results with competitive accuracy in certain cases but higher overall errors. The Diebold-Mariano test confirmed the superiority of the random walk model, especially for longer-term forecasts. Overall, random walk is a robust base model for longer-term forecasts, while other models contribute to short-term predictions, with random forest showing potential for further improvement.

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Publication Details

Journal
International Journal of Bonds and Derivatives
Published
2025-01-01
DOI
https://doi.org/10.1504/ijbd.2025.148693
Primary Topic
Monetary Policy and Economic Impact
Type
article
Field-Weighted Citation Impact
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article

Forecasting the yield curve for the Eurozone and USA using standard methods and machine learning approach

Jura Jurčević, Davor Zoričić, Zrinka Orlović
International Journal of Bonds and Derivatives
Monetary Policy and Economic Impact
article

Forecasting the yield curve for the Eurozone and USA using standard methods and machine learning approach

Jura Jurčević, Davor Zoričić, Zrinka Orlović
article en

Abstract

This paper investigates forecasting yield curve parameters using the Svensson model for the Eurozone and US markets, applying random walk, autoregressive, vector autoregression, and random forest models. Forecast accuracy was assessed using root mean square error over 1-day, 6-day, and 12-day horizons, and performance was compared using the Diebold-Mariano test. Results indicate that the random walk model consistently provided the most accurate forecasts, particularly for the level and slope of the yield curve. Autoregressive and vector autoregression models performed well for short-term forecasts, while random forest showed mixed results with competitive accuracy in certain cases but higher overall errors. The Diebold-Mariano test confirmed the superiority of the random walk model, especially for longer-term forecasts. Overall, random walk is a robust base model for longer-term forecasts, while other models contribute to short-term predictions, with random forest showing potential for further improvement.

International Journal of Bonds and DerivativesVol. 4(4)
University of Zagreb (HR), Institute of Economics Zagreb (HR)
Openalex Percentile: Top 59%
Monetary Policy and Economic Impact
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