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A Rotated Dynamic Nelson‐Siegel Model
Author(s) -
Nyholm Ken
Publication year - 2018
Publication title -
economic notes
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.274
H-Index - 19
eISSN - 1468-0300
pISSN - 0391-5026
DOI - 10.1111/ecno.12094
Subject(s) - parametrization (atmospheric modeling) , yield curve , dynamic factor , econometrics , process (computing) , economics , yield (engineering) , type (biology) , mathematics , mathematical economics , computer science , interest rate , macroeconomics , physics , geology , thermodynamics , paleontology , quantum mechanics , radiative transfer , operating system
I show how to rotate the factor structure of the well‐known Dynamic Nelson‐Siegel yield‐curve model to enable direct parametrization of the short rate process. This makes it easy to calculate model‐implied term premia and to integrate macroeconomic variables into the model in a Taylor‐rule‐type fashion.