Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154284
Authors: 
Nyholm, Ken
Year of Publication: 
2015
Series/Report no.: 
ECB Working Paper 1851
Abstract: 
A factor rotation scheme is applied to the well-known Dynamic Nelson-Siegel model facilitating direct parametrization of the short rate process. The model-implied term structure of term premia is derived in closed-form, and macroeconomic variables are included in a Taylor-rule- type fashion. Four empirical experiments are performed on US data covering the period from 1990 to 2014. It is found that macroeconomic variables impact the evolution of the short rate until 2002, after which their effects become insignificant in a statistical sense. The calculated term structure of term premia is robust to the tested parameterzations, and traces out the interest rate cycles present in the data.
Subjects: 
dynamic Nelson-Siegel model
factor rotation
policy rate
state space model
term premia
yield curve modeling
JEL: 
G1
E4
C5
ISBN: 
978-92-899-1664-6
Document Type: 
Working Paper

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