BlackRock work project estimating and forecasting international yield curves: a no-arbitrage VAR with macroeconomic and latent variables

The focus of this paper is to replicate and extend the estimation of a model for the prediction of interest rate affine term structures to G10 countries. The existing literature for the prediction of yield curves is vast, we will be focusing on the popular class of Gaussian affine term structure models. Our model uses measures of real activity and inflation as macroeconomic variables together with unobservable variables, through non-arbitrage VARs. Our purpose is to find how well this model fares at forecasting in different markets and if the model is good at predicting the correct shifts in the yield curve. This Work Project had the objective of delivering its results to BlackRock so they can trade based on forecasts from the model