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Estimating and Forecasting the Yield Curve Using a Markov Switching Dynamic Nelson and Siegel Model

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Author Info

  • Martin Gonzalez Rozada

    ()

  • Martin sola

    ()

  • Constantino Hevia

    ()

  • Fabio Spagnolo

    ()

Abstract

In this paper we estimate the yield curve of U.S. government bonds using a Markov switching latent variable model. We show how measures such as the level, slope, and curvature of the yield curve are a�ected by business cycle conditions. We present a switching latent model which not only seem to capture this features in sample but also performs well out of sample.

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Bibliographic Info

Paper provided by Universidad Torcuato Di Tella in its series Department of Economics Working Papers with number 2012-07.

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Length: 47 pages
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:udt:wpecon:2012-07

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Web page: http://www.utdt.edu/ver_contenido.php?id_contenido=439&id_item_menu=568
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Related research

Keywords: Yield Curve; Term structure of interest rates; Markov regime switching; Maxi- mum likelihood; Risk premium.;

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  1. McAfee, R. Preston & McMillan, John, 1989. "Government procurement and international trade," Journal of International Economics, Elsevier, vol. 26(3-4), pages 291-308, May.
  2. Roberto Burguet & Martin K. Perry, 2009. "Preferred suppliers in auction markets," RAND Journal of Economics, RAND Corporation, vol. 40(2), pages 283-295.
  3. Arozamena, Leandro & Weinschelbaum, Federico, 2011. "On favoritism in auctions with entry," Economics Letters, Elsevier, vol. 110(3), pages 265-267, March.
  4. Federico Weinschelbaum & Leandro Arozamena, 2006. "A Note on the Suboptimality of Right-of-First-Refusal Clauses," Working Papers 92, Universidad de San Andres, Departamento de Economia, revised Jul 2006.
  5. Laffont, Jean-Jacques & Tirole, Jean, 1991. "Auction design and favoritism," International Journal of Industrial Organization, Elsevier, vol. 9(1), pages 9-42, March.
  6. Naegelen, Florence & Mougeot, Michel, 1998. "Discriminatory public procurement policy and cost reduction incentives," Journal of Public Economics, Elsevier, vol. 67(3), pages 349-367, March.
  7. repec:ebl:ecbull:v:4:y:2006:i:24:p:1-5 is not listed on IDEAS
  8. Lee, Joon-Suk, 2008. "Favoritism in asymmetric procurement auctions," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1407-1424, November.
  9. Branco, Fernando, 1994. "Favoring domestic firms in procurement contracts," Journal of International Economics, Elsevier, vol. 37(1-2), pages 65-80, August.
  10. Vagstad, Steinar, 1995. "Promoting fair competition in public procurement," Journal of Public Economics, Elsevier, vol. 58(2), pages 283-307, October.
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