a b s t r a c t
The popular NelsonSiegel [Nelson, C.R., Siegel, A.F., 1987. Parsimonious modeling of yield curves. Journal
of Business 60, 473489] yield curve is routinely fit to cross sections of intra-country bond yields, and
DieboldLi [Diebold, F.X., Li, C., 2006. Forecasting the term structure of government bond yields. Journal
of Econometrics 130, 337364] have recently proposed a dynamized version. In this paper we extend
DieboldLi to a global context, modeling a potentially large set of country yield curves in a framework
that allows for both global and country-specific factors. In an empirical analysis of term structures of
government bond yields for the Germany, Japan, the UK and the US, we find that global yield factors do
indeed exist and are economically important, generally explaining significant fractions of country yield
curve dynamics, with interesting differences across countries.
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