Modeling bond yields in finance and macroeconomics
From a macroeconomic perspective, the short-term interest rate is a policy instrument under the direct control of the central bank. From a finance perspective, long rates are risk-adjusted averages of expected future short rates. Thus, as illustrated by much recent research, a joint macro-finance modeling strategy will provide the most comprehensive understanding of the term structure of interest rates. We discuss various questions that arise in this research, and we also present a new examination of the relationship between two prominent dynamic, latent factor models in this literature: the Nelson-Siegel and affine no-arbitrage term structure models.
|Date of creation:||2005|
|Date of revision:|
|Publication status:||Published in American Economic Review Papers and Proceedings, v. 95, no. 2 (May 2005) pp. 415-420|
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2004 Meeting Papers
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- Glenn D. Rudebusch & Tao Wu, 2004. "A macro-finance model of the term structure, monetary policy, and the economy," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
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- Glenn D. Rudebusch & Tao Wu, 2003. "A macro-finance model of the term structure, monetary policy, and the economy," Working Paper Series 2003-17, Federal Reserve Bank of San Francisco.
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"The Macroeconomy and the Yield Curve: A Dynamic Latent Factor Approach,"
NBER Working Papers
10616, National Bureau of Economic Research, Inc.
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