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Global yield curve dynamics and interactions: a dynamic Nelson-Siegel approach. (English) Zbl 1429.62660

Summary: The popular C. R. Nelson and A. F. Siegel [“Parsimonious modeling of yield curves”, J. Bus. 60, No. 4, 473–489 (1987; doi:10.3386/w1594)] yield curve is routinely fit to cross sections of intra-country bond yields, and F. X. Diebold and C. Li [J. Econom. 130, No. 2, 337–364 (2006; Zbl 1337.62324)] have recently proposed a dynamized version. In this paper we extend Diebold-Li to a global context, modeling a potentially large set of country yield curves in a framework that allows for both global and country-specific factors. In an empirical analysis of term structures of government bond yields for the Germany, Japan, the UK and the US, we find that global yield factors do indeed exist and are economically important, generally explaining significant fractions of country yield curve dynamics, with interesting differences across countries.

MSC:

62P20 Applications of statistics to economics
62F15 Bayesian inference
62M20 Inference from stochastic processes and prediction
62P05 Applications of statistics to actuarial sciences and financial mathematics

Citations:

Zbl 1337.62324
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