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Estimating the Term Structure of Interest Rates

Bank of England Working Paper No. 24

Posted: 6 Nov 2003  

Mark Deacon

Bank of England

Andrew Derry

Bank of England

Abstract

This paper examines various techniques used to estimate the term structure of interest rates from the prices of government bonds; in particular comparing the current Bank of England model with two approaches suggested in the academic literature. There are two main aspects of this problem: estimating the relationship between bond yields and maturity, and the relationship between bond yields and coupon. The paper outlines how these problems are approached by the three models, and compares them on both theoretical and practical grounds. It concludes that there is a trade-off between theoretical rigour and practical considerations.

JEL Classification: E43, G12

Suggested Citation

Deacon, Mark and Derry, Andrew, Estimating the Term Structure of Interest Rates. Bank of England Working Paper No. 24. Available at SSRN: https://ssrn.com/abstract=76612

Mark Deacon

Bank of England

Threadneedle Street
London, EC2R 8AH
United Kingdom

Andrew Derry

Bank of England

Threadneedle Street
London, EC2R 8AH
United Kingdom

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