 International Yield Curves and Principal Components Selection Techniques: An Empirical AssessmentFulvio Pegoraro (), A. F. Siegel and Luca Tiozzo Pezzoli Working papers from Banque de France Abstract: Using a common database, we provide a controlled empirical comparison of recently-proposed principal component (PC) methods for selecting a combination of common and local factors that characterize the joint dynamics of multi-country term structures. We build a database of daily Treasury yield curves for U.S., Germany, U.K. and Japan, using common criteria to filter coupon bond data, to ensure liquidity, and to interpolate the discount function. We then estimate each proposed PC method for all subgroups of these countries, using both yield levels and yield differences at weekly frequency. We find, in general, that the proposed methods do not agree with one another on the preferred combination of common and/or local factors. We identify the explained variability decision criterion as an important source of this lack of agreement and recommend consideration of alternative statistical model selection techniques for the purpose of identifying common and local yield curve factors in international data. Keywords: international Treasury yield curves database; Nelson-Siegel term structure estimation techniques; principal component selection techniques; common and local factors; explained variance. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:489 Access Statistics for this paper More papers in Working papers from Banque de France Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS. Contact information at EDIRC. |
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