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

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  • Francis X. Diebold

    ()
    (Department of Economics, University of Pennsylvania)

  • Canlin Li

    ()
    (Graduate School of Management, University of California, Riverside)

  • Vivian Z. Yue

    ()
    (Department of Economics, New York University)

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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Bibliographic Info

Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 07-030.

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Length: 39 pages
Date of creation: 30 May 2007
Date of revision:
Handle: RePEc:pen:papers:07-030

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Keywords: Term Structure; Interest Rate; Dynamic Factor Model; Global Yield; World Yield; Bond Market;

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