This paper shows how a standard DSGE model can be extended to reproduce the dynamics in the 10 year yield curve for the post-war US economy with a similar degree of precision as in reduced form term structure models. At the same time, we are able to reproduce the dynamics of four key macro...

We consider the dynamic factor model and show how smoothness restrictions can be imposed on the factor loadings. Cubic spline functions are used to introduce smoothness in factor loadings. We develop statistical procedures based on Wald, Lagrange multiplier and likelihood ratio tests for this...