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Global Yield Curve Dynamics and Interactions: A Dynamic Nelson-Siegel Approach

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  • Francis X. Diebold
  • Canlin Li
  • Vivian Z. Yue

Abstract

The popular Nelson-Siegel (1987) yield curve is routinely fit to cross sections of intra-country bond yields, and Diebold and Li (2006) 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 U.K. and the U.S., 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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13588.

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Date of creation: Nov 2007
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Publication status: published as Diebold, Francis X. & Li, Canlin & Yue, Vivian Z., 2008. "Global yield curve dynamics and interactions: A dynamic Nelson-Siegel approach," Journal of Econometrics, Elsevier, vol. 146(2), pages 351-363, October.
Handle: RePEc:nbr:nberwo:13588

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