NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Modeling Bond Yields in Finance and Macroeconomics

Francis X. Diebold, Monika Piazzesi, Glenn Rudebusch

NBER Working Paper No. 11089
Issued in January 2005
NBER Program(s):   AP   EFG   ME

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 affne no-arbitrage term structure models.

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Document Object Identifier (DOI): 10.3386/w11089

Published: Diebold, Francis X., Monika Piazzesi and Glenn D. Rudebusch. "Modeling Bonds Yields In Finance And Macroeconomics," American Economic Review, 2005, v95(2,May), 415-420. citation courtesy of

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