The Empirical Analysis Of Term Structure Of Interest Rate Based On Dynamic Extension Nelson-Siegel Model Structure

The term Structure of interest rate is one of the most important topic of financial Research and it has become the basis of asset pricing, risk management and monetary policy making. With the deepening of the process of marketization of interest rates and the rapid development of the bond market, the research about the term structure of interest rate is even more necessary. How to construct the term structure in line with the status of China's bond market and examine the dynamic changes of the term structure of interest rate is of great theoretical and practical value.Modern research about the term structure of interest rate mainly contains the static model, no-arbitrage model, equilibrium model, macro-financial model and hybrid model. Nelson and Siegel(1987) proposed simple parametric model and Svensson(1995) expanded this basis, and Diebold and Li(2006) proposed the dynamic model. Due to the simple form, the obvious economic implications parameters and other features, it has become the main choice of monetary policy including many developed countries such as the United States, and it is estimated that as a result of monetary policy regularly publish supplementary indicators, which achieved good results in practice.This paper uses empirical methods based on quantitative analysis and did systematic study from the angle of both theoretical and empirical analysis about the term structure of interest rates. The paper introduces the theory of the term structure of interest rates at home and abroad, for the basic model and implementation methods are discussed, also focuses on the analysis of dynamic Nelson-Siegel model(DNS) and dynamic expansion of Nelson-Siegel model(DGNS) including the corresponding state-space equations and factors of economic implications. During the empirical analysis part, we use the debt data of interest rate among the inter-bank market and conducted a comprehensive analysis about dynamic characteristics of China term structure of interest rate including the specific form of term structure of interest rates, dynamic characteristics, such as the term structure factors. Through DNS Empirical data model and DGNS model we conduct comparative analysis of the Nelson-Siegel model to explain the ability to fit and predict the Chinese Treasury bill rate data to prove DGNS model relatively more accurate in the short-term forecast compared to the DNS model. Finally we use the factors about the term structure of interest rate and macroeconomic data to establish the macro-finance model named VECM model. Meanwhile, we conduct in-depth analysis of the relevance and influence and get a cointegration relationship between macroeconomic variable and the term structure of interest rate which will provides reference for scholars conducting subsequent macro-financial analysis.