NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Reconstructing the Yield Curve

Yan Liu, Jing Cynthia Wu

NBER Working Paper No. 27266
Issued in May 2020, Revised in August 2020
NBER Program(s):Asset Pricing, Economic Fluctuations and Growth, Monetary Economics

The constant-maturity zero-coupon Treasury yield curve is one of the most studied datasets. We reconstruct the yield curve using a non-parametric kernel-smoothing method with a novel adaptive bandwidth specifically designed to fit the Treasury yield curve. Our curve is globally smooth while still capturing important local variation. Economically, we show that applying our data leads to different conclusions from using the leading alternative data of G├╝rkaynak et al. (2007) (GSW) when we repeat two popular studies of Cochrane and Piazzesi (2005) and Giglio and Kelly (2018). Statistically, we show our dataset preserves information in the raw data and has much smaller pricing errors than GSW. Our new yield curve is maintained and updated online, complemented by bandwidths that summarize information content in the raw data.

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Document Object Identifier (DOI): 10.3386/w27266

 
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