Term structure estimation without using latent factors
No 103, Computing in Economics and Finance 2005 from Society for Computational Economics
A combination of observed and unobserved (latent) factors capture term structure dynamics. Information about these dynamics is extracted from observed factors without specifying or estimating any of the parameters associated with latent factors. Estimation is equivalent to fitting the moment conditions of a set of regressions, where no-arbitrage imposes cross equation restrictions on the coefficients. The methodology is applied to the dynamics of inflation and yields. Outside of the disinflationary period of 1979 through 1983, short-term rates move one for one with expected inflation, while bond risk premia are insensitive to inflation.
JEL-codes: G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin and nep-mon
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Journal Article: Term structure estimation without using latent factors (2006)
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