Estimatinf the Term Structure of Interest Rates with Simple and Complex Functional Forms: Nelson & Siegel vs. Longstaff & Schwartz
1994 (English)Report (Other academic)
The paper compares estimation of spot (zero-coupon) interest rates and implicit forward interest rates from Swedish Treasury bill rates and Government coupon bond yields with two functional forms for the discount function, the simple form of Nelson & Siegel (NS) and the complex form of Longstaff & Schwartz (LS). NS is much easier to use and has much better convergence properties, whereas LS is more flexible. For the data used, estimates with NS and LS are close, with only marginally better fit for LS. The fit of NS seems satisfactory for monetary policy purposes.
Place, publisher, year, edition, pages
Stockholm: IIES , 1994. , 32 p.
Seminar Paper / Institute for International Economic Studies, Stockholm University, ISSN 0347-8769 ; 565
discount function, forward rates, spot rates
IdentifiersURN: urn:nbn:se:su:diva-41889OAI: oai:DiVA.org:su-41889DiVA: diva2:342795