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New estimates of the UK real and nominal yield curves

  • Nicola Anderson
  • John Sleath
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    This paper presents some new estimates of the UK real and nominal yield curves. These estimates are derived using a spline-based technique modified for the UK government bond markets. At the short end of the nominal yield curve, additional data are included from the GC repo market. Estimates of the real yield curve are derived from the prices of index-linked gilts. It is found that the new yield curves outperform existing methods on a number if criteria that are designed to examine the suitability of estimates for the purpose of assessing monetary conditions. In particular, the estimates are found to be smooth across maturity while having sufficient flexibility to describe the shape of the curve at shorter maturities where expectations are relatively precise. The curves are also robust to small errors in the data.

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    File URL: http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/2001/wp126.pdf
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    Paper provided by Bank of England in its series Bank of England working papers with number 126.

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    Date of creation: Mar 2001
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    Handle: RePEc:boe:boeewp:126
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    1. Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, vol. 60(4), pages 473-89, October.
    2. Mark Fisher & Douglas Nychka & David Zervos, 1995. "Fitting the term structure of interest rates with smoothing splines," Finance and Economics Discussion Series 95-1, Board of Governors of the Federal Reserve System (U.S.).
    3. McCulloch, J Huston, 1975. "The Tax-Adjusted Yield Curve," Journal of Finance, American Finance Association, vol. 30(3), pages 811-30, June.
    4. McCulloch, J Huston, 1971. "Measuring the Term Structure of Interest Rates," The Journal of Business, University of Chicago Press, vol. 44(1), pages 19-31, January.
    5. Daniel F. Waggoner, 1997. "Spline methods for extracting interest rate curves from coupon bond prices," Working Paper 97-10, Federal Reserve Bank of Atlanta.
    6. Mark Deacon & Andrew Derry, 1994. "Deriving Estimates of Inflation Expectations from the Prices of UK Government Bonds," Bank of England working papers 23, Bank of England.
    7. Martin D. D. Evans, 1998. "Real Rates, Expected Inflation, and Inflation Risk Premia," Journal of Finance, American Finance Association, vol. 53(1), pages 187-218, 02.
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