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Yield Curve Modeling and ForecastingThe Dynamic Nelson-Siegel Approach$
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Francis X. Diebold and Glenn D. Rudebusch

Print publication date: 2013

Print ISBN-13: 9780691146805

Published to Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691146805.001.0001

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(p.126) 5 Macro-Finance
Yield Curve Modeling and Forecasting

Francis X. Diebold

Glenn D. Rudebusch

Princeton University Press

This chapter discusses a variety of arbitrage-free Nelson–Siegel (AFNS) macro-finance yield curve approaches. The AFNS factor structure provides a very useful framework for examining various macro-finance questions given the computational difficulties in extending finance-only affine arbitrage-free models. One application of the AFNS model, in Christensen et al. (2010c), produces estimates of the inflation expectations of financial market participants from prices of nominal and real bonds. A second macro-finance application of the AFNS model, provided in Christensen et al. (2009), investigates the effect of the new central bank liquidity facilities that were instituted during the financial crisis. The chapter concludes with a discussion of evolving research directions.

Keywords:   macro-finance yield curve modeling, arbitrage-free Nelson–Siegel models, dynamic Nelson–Siegel model, Rudebusch–Wu model

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