To what extent can information in the term structure of interest rates predict macroeconomic variables in Norway?

Abstract

This research paper examines to what extent information in the term structure can predict macroeconomic variables. We use Norwegian interest rates in the period April 2001 to December 2018 to investigate the forecast performance on inflation and unemployment. By using the Nelson-Siegel model as the core of the analysis, we derive a factor model. Further, by comparing this to an autoregressive benchmark model, we find that the level and slope factors are the most valuable factors when forecasting inflation and that the curvature factor is the most valuable factor when forecasting unemployment.