NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Global Yield Curve Dynamics and Interactions: A Dynamic Nelson-Siegel Approach

Francis X. Diebold, Canlin Li, Vivian Z. Yue

NBER Working Paper No. 13588
Issued in November 2007
NBER Program(s):   AP   EFG   IFM

The popular Nelson-Siegel (1987) yield curve is routinely fit to cross sections of intra-country bond yields, and Diebold and Li (2006) have recently proposed a dynamized version. In this paper we extend Diebold-Li to a global context, modeling a potentially large set of country yield curves in a framework that allows for both global and country-specific factors. In an empirical analysis of term structures of government bond yields for the Germany, Japan, the U.K. and the U.S., we find that global yield factors do indeed exist and are economically important, generally explaining significant fractions of country yield curve dynamics, with interesting differences across countries.

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Published: Diebold, Francis X. & Li, Canlin & Yue, Vivian Z., 2008. "Global yield curve dynamics and interactions: A dynamic Nelson-Siegel approach," Journal of Econometrics, Elsevier, vol. 146(2), pages 351-363, October.

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