Generalized Nelson–Siegel term structure model: do the second slope and curvature factors improve the in-sample fit and out-of-sample forecasts?

References

• Bank for International Settlements, Zero-coupon yield curves: Technical documentation, BIS papers, No. 25, 2005.
   Google Scholar
• T. Bjork and B.J. Christensen, Interest rate dynamics and consistent forward rate curves, Math. Financ. 9 (1999), pp. 323–348. doi: 10.1111/1467-9965.00072
   Web of Science ®Google Scholar
• R.R. Bliss, Testing term structure estimation methods, Adv. Futures Opt. Res. 9 (1997), pp. 197–231.
   Google Scholar
• J.H.E. Christensen, F.X. Diebold, and G.D. Rudebusch, An arbitrage-free generalized Nelson–Siegel term structure model, Econom. J. 12 (2009), pp. 33–64. doi: 10.1111/j.1368-423X.2008.00267.x
   Web of Science ®Google Scholar
• J.H.E. Christensen, F.X. Diebold, and G.D. Rudebusch, The affine arbitrage-free class of Nelson–Siegel term structure models, J. Econometrics 164 (2011), pp. 4–20. doi: 10.1016/j.jeconom.2011.02.011
   Web of Science ®Google Scholar
• L. Coroneo, N. Ken, and V.K. Rositsa, How arbitrage-free is the Nelson–Siegel model? Working paper, European Central Bank, No. 874, 2008.
   Google Scholar
• M. De Pooter, Examining the Nelson–Siegel class of term structure models, Tinbergen Institute Discussion Papers No. 43, June, 2007.
   Google Scholar
• F.X. Diebold and C. Li, Forecasting the term structure of government bond yields, J. Econom. 130 (2006), pp. 337–364. doi: 10.1016/j.jeconom.2005.03.005
   Web of Science ®Google Scholar
• F.X. Diebold and R.S. Mariano, Comparing predictive accuracy, J. Bus. Econom. Statist. 13 (1995), pp. 253–263.
   Web of Science ®Google Scholar
• G.R. Duffee, Term premia and interest rate forecasts in affine models, J. Financ. 53 (2002), pp. 527–552.
   Google Scholar
• E. Fama and R. Bliss, The information in long-maturity forward rates, Am. Econ. Rev. 77 (1987), pp. 680–692.
   Web of Science ®Google Scholar
• R.S. Gurkaynak, S. Brian, and H.W. Jonathan, The U.S. treasury yield curve: 1961 to the present, J. Monetary Econom. 54 (2007), pp. 2291–2304. doi: 10.1016/j.jmoneco.2007.06.029
   Web of Science ®Google Scholar
• J.D. Hamilton, 1994. State space models, in Handbook of Econometrics, R.F. Engle and D.L. McFadden, eds., Elsevier, Amsterdam, 1994, pp. 3041–3080.
   Google Scholar
• A. Harvey, E. Ruiz, and E. Sentana, Unobserved component time series models with ARCH disturbances, J. Econometrics. 52 (1992), pp. 129–157. doi: 10.1016/0304-4076(92)90068-3
   Web of Science ®Google Scholar
• K. Kikuchi and K. Shintani, Comparative analysis of zero coupon yield curve estimation methods using JGB price data, Monetary Econ. Stud. 30 (2012), pp. 75–122.
   Google Scholar
• D. Kim and K. Singleton, Term structure models and the zero bound: An empirical investigation of Japanese yields, J. Econometrics 170(1) (2012), pp. 32–49. doi: 10.1016/j.jeconom.2011.12.005
   Web of Science ®Google Scholar
• S. Koopman, M. Mallee, and M. van der Wel, Analyzing the term structure of interest rates using dynamic Nelson–Siegel model with time-varying parameters, J. Bus. Econom. Statist. 28 (2010), pp. 329–343. doi: 10.1198/jbes.2009.07295
   Web of Science ®Google Scholar
• C.R. Nelson and A.F. Siegel, Parsimonious modeling of yield curves, J. Bus. 60 (1987), pp. 473–489. doi: 10.1086/296409
   Web of Science ®Google Scholar
• G.D. Rudebusch and W. Tao, A macro-finance model of the term structure, monetary policy, and the economy, Econom. J. 118(530) (2008), pp. 906–926.
   Google Scholar
• L.E.O. Svensson, Estimating forward interest rates with the extended Nelson–Siegel method, Sveriges Riksbank Q Rev. 3 (1995), pp. 13–26.
   Google Scholar
• W. Ullah, Term structure forecasting in affine framework with time-varying volatility: Do no-arbitrage restriction and stochastic volatility factor imply better out-of-sample forecasts? Forthcoming in Statist. Methods Appl. (2014).
   Google Scholar
• W. Ullah, Y. Matsuda, and Y. Tsukuda, Term structure modeling and forecasting of government bond yields: Does a good in-sample fit imply reasonable out-of-sample forecast? Econom. Papers J. Appl. Econom. Policy. 32(4) (2013a), pp. 535–560. doi: 10.1111/1759-3441.12046
   Google Scholar
• W. Ullah, Y. Matsuda, and Y. Tsukuda, Dynamics of the term structure of interest rates and monetary policy: Is monetary policy effective during zero interest rate policy? J. Appl. Statist. 41(3) (2014), pp. 546–572. doi: 10.1080/02664763.2013.845142
   Web of Science ®Google Scholar
• W. Ullah, Y. Tsukuda, and Y. Matsuda, Term structure forecasting of government bond yields with latent and macroeconomic factors: Do macroeconomic factors imply better out-of-sample forecasts? J. Forecasting 32 (2013b), pp. 702–723. doi: 10.1002/for.2266
   Web of Science ®Google Scholar