Working Paper
Modeling bond yields in finance and macroeconomics
Abstract: 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.
Keywords: Bonds; Macroeconomics; Finance; Econometric models;
Status: Published in American Economic Review Papers and Proceedings, v. 95, no. 2 (May 2005) pp. 415-420
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Bibliographic Information
Provider: Federal Reserve Bank of San Francisco
Part of Series: Working Paper Series
Publication Date: 2005
Number: 2005-04