Examining the Nelson-Siegel Class of Term Structure Models

Arbeitspapier

In this paper I examine various extensions of the Nelson and Siegel (1987) model with the purpose of fitting and forecasting the term structure of interest rates. As expected, I find that using more flexible models leads to a better in-sample fit of the term structure. However, I show that the out-of-sample predictability improves as well. The four-factor model, which adds a second slope factor to the three-factor Nelson-Siegel model, forecasts particularly well. Especially with a one-step state-space estimation approach the four-factor model produces accurate forecasts and outperforms competitor models across maturities and forecast horizons. Subsample analysis shows that this outperformance is also consistent over time.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Tinbergen Institute Discussion Paper ; No. 07-043/4

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
• Subject: Term structure of interest rates ; Nelson-Siegel ; Svensson ; Forecasting ; State-space model ; Zinsstruktur ; Zustandsraummodell ; Prognoseverfahren ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Pooter, Michiel De
• Event: Veröffentlichung
• (who): Tinbergen Institute
• (where): Amsterdam and Rotterdam
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/86575
• Last update: 10.03.2025, 11:44 AM CET