Adaptive Dynamic Nelson-Siegel Term Structure Model with Applications

Ying Chen and Linlin Niu

No 2013-10-14, Working Papers from Wang Yanan Institute for Studies in Economics (WISE), Xiamen University

Abstract: We propose an Adaptive Dynamic Nelson-Siegel (ADNS) model to adaptively forecast the yield curve. The model has a simple yet flexible structure and can be safely applied to both stationary and nonstationary situations with different sources of change. For the 3- to 12-months ahead out-of-sample forecasts of the US yield curve from 1998:1 to 2010:9, the ADNS model dominates both the dynamic Nelson-Siegel (DNS) and random walk models, reducing the forecast error measurements by between 30 and 60 percent. The locally estimated coefficients and the identified stable subsamples over time align with policy changes and the timing of the recent financial crisis.

Keywords: Yield curve; term structure of interest rates; local parametric models; forecasting (search for similar items in EconPapers)
JEL-codes: C32 C53 E43 E47 (search for similar items in EconPapers)
Date: 2013-10-14
New Economics Papers: this item is included in nep-for and nep-mac
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Citations: View citations in EconPapers (2)

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Journal Article: Adaptive dynamic Nelson–Siegel term structure model with applications (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:wyi:wpaper:002047

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