Template-type: ReDIF-Paper 1.0
Author-Name: Pilar Abad
Author-Workplace-Name:  Departamento de Economía Aplicada. Universidad de Vigo 
Author-Name: Alfonso Novales 
Author-Email: anovales@ccee.ucm.es
Author-Homepage: https://www.ucm.es/fundamentos-analisis-economico2/novales-cinca,-alfonso
Author-Person: pno7
Author-Workplace-Name: Departamento de Economía Cuantitativa. Universidad Complutense de Madrid
Author-Workplace-Homepage: https://www.ucm.es/fundamentos-analisis-economico2
Title: An Error Correction Factor Model of Term Structure Slopes in International Swaps Markets
Abstract: The first two principal components in the vector of term structure slopes from IRS 
	markets in eight major currencies can be approximately identified as the slopes for the US dollar
	and Deutsche mark. Each of the eight slopes considered is cointegrated with these two factors.
	The implied Error Correction models can be very fruitful for short and medium term slope forecasting 
	for the eight currencies. This scheme achieves a drastic reduction of dimensionality, since the eight 
	slopes can be predicted using just univariate forecasts for the two factors. Adding more factors to 
	the model does not lead to a significant improvement in forecasting performance, while forecasts 
	obtained using just one factor are not as good as those from two-factor Error Correction models.
Classification-JEL: E37, E43
Keywords: Factor models, Term structure of interest rates, Principal components, Swap markets, IRS.
Length: pages 19
Creation-Date: 2002
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae0222.txt
File-URL: https://eprints.ucm.es/id/eprint/7681/1/0222.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:0222