We estimate a model with latent factors that summarize the yield curve (namely, level, slope, and curvature) as well as observable macroeconomic variables (real activity, inflation, and the stance of monetary policy). Our goal is to provide a characterization of the dynamic interactions between...

We estimate a model with latent factors that summarize the yield curve (namely, level, slope, and curvature) as well as observable macroeconomic variables (real activity, inflation, and the stance of monetary policy). Our goal is to provide a characterization of the dynamic interactions between...

The extended Kalman filter, which linearizes the relationship between security prices and state variables, is widely used in fixed income applications. We investigate if the unscented Kalman filter should be used to capture nonlinearities, and compare the performance of the Kalman filter to that...