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An Assessment of Estimates of Term Structure Models for the United States

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  • Carlos I. Medeiros
  • Ying He
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    Abstract

    The paper assesses estimates of term structure models for the United States. To this end, this paper first describes the mathematics underlying two types of term structure models, namely the Nelson-Siegel and Cox, Ingersoll and Ross family of models, and the estimation techniques. It then presents estimations of some of specific models within these families of models?three-factor Nelson-Siegel Model, four-factor Svensson model, and preference-free, two-factor Cox, Ingersoll and Roll model?for the United States from 1972 to mid 2011. It subsequently provides an assessment of the estimations. It concludes that these estimations of the term structure models successfully capture the dynamics of the term structure in the United States.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/247.

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    Length: 31
    Date of creation: 01 Oct 2011
    Date of revision:
    Handle: RePEc:imf:imfwpa:11/247

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    Related research

    Keywords: Economic models; Interest rate structures; equation; bond; covariance; bonds; equations; mathematics; statistics; goodness of fit; time series; coupon bond; econometrics; statistic; bond return; bond yields; kurtosis; financial markets; monte carlo simulation; forward contract; optimization; stochastic process; skewness; random variables; calculus; zero coupon bonds; government bond; bond price; measurement errors; stochastic differential equations; government bond yields; dynamic models; random errors; computations; diagonal matrix; estimation period; time series analysis; dynamic system; polynomial; mean square; financial derivatives; stochastic differential equation; forecasting; conditional expectation;

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    1. Francis X. Diebold & Canlin Li, 2002. "Forecasting the Term Structure of Government Bond Yields," Center for Financial Institutions Working Papers 02-34, Wharton School Center for Financial Institutions, University of Pennsylvania.
    2. Diebold, Francis X. & Rudebusch, Glenn D. & Borag[caron]an Aruoba, S., 2006. "The macroeconomy and the yield curve: a dynamic latent factor approach," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 309-338.
    3. International Monetary Fund, 2010. "On the Estimation of Term Structure Models and An Application to the United States," IMF Working Papers 10/258, International Monetary Fund.
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