Date: Wednesday, 23 September 2026, at 14:00 pm
Venue: Room Bruguier Pacini, DEM
Speaker: Chiara Casoli (Researcher in econometrics at the Department of Economics of the University of Insubria and collaborates with the Eni Enrico Mattei Foundation in Milan)
Title: A rotated Dynamic Factor Model for the yield curve: squeezing out information when it matters
Abstract: The yield curve is widely regarded as a powerful descriptor of the economy and market expectations. A common approach to its statistical representation relies on a small number of factors summarizing the curve, which can then be used to forecast real economic activity. We argue that optimal factor extraction is crucial for retrieving information when considering an approximate factor model. By introducing a rotation of the model including cointegration, we reduce cross-sectional dependence in the idiosyncratic components. This leads to improved forecasts of key macroeconomic variables during periods of economic and financial instability, both in the US and the euro area.
