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Global yield curve dynamics and interactions: A dynamic Nelson-Siegel approach

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

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 Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2008/27.

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Date of creation: 2007
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Handle: RePEc:zbw:cfswop:200827
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  8. Francis X. Diebold & Monika Piazzesi & Glenn D. Rudebusch, 2005. "Modeling bond yields in finance and macroeconomics," Working Paper Series 2005-04, Federal Reserve Bank of San Francisco.
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