Measuring The Nonlinear Behavior Of The Term Structure Of The Chinese Government Bond

Since the reform and opening up,China's bond market has developed quickly,and the term structure of government bond yields has also gradually improved.At the same time,although the economy of China is growing relatively fast,in some years the economic growth rate has declined significantly.In recent years,China has entered a new normal in economic development.Because the term structure of government bond yields contains important macroeconomic and financial information,exploring the interaction between the macro economy and the term structure of interest rates under economic cycle conditions is of great significance for monetary policy formulation and asset pricing.Compared with the equilibrium model and no-arbitrage model,the NelsonSiegel model is more convenient to incorporate macroeconomic variables and directly analyze the interaction between macro economy and the term structure of interest rates.However,when we incorporate macroeconomic variables,it is necessary to pay attention to the problem of mixed frequency data.Ignoring the mixed frequency data may cause related problems such as model misspecification.It can be seen that,under the framework of the Nelson-Siegel model,especially faced with mixed frequency data,exploring the impact of the business cycle on the term structure of interest rates is a challenging task.Based on the Nelson-Siegel model,this paper uses the macroeconomic mixed frequency data,and proposes a mixed frequency Nelson-Siegel model with regime switching(MS-MF-NS model).Compared with the previous model,the model has two advantages: First,considering the regime switching,this model can accurately capture the nonlinear changes of the term structure and study the interaction between the macroeconomic factor and the term structure factor.Second,the mixed frequency data can reflect more information,which is more advantageous in terms of yield fitting and prediction.The most work and results are as follows.First,compared with the traditional model,the MS-MF-NS model can further improve the fitting effect of the government bond yield,and accurately capture the trend of the term structure factor.Second,the Wald test shows that there are significant differences in the mean value of the term structure factor and macro factor under different regime,and the nonlinear characteristics of the term structure of interest rate are closely related to the business cycle and slope factor.Third,the impulse response results show that after considering the regime shifts,the slope factor of the term structure has an enhanced predictive effect on the business cycle and inflation.At the same time,the effects of GDP on the level and slope factor are more significant in the short term.Finally,the results of the variance decomposition show that after considering the regime switching,the macroeconomic variables play a more important role in the variation of bond yield and term structure.It is of great practical significance to study the non-linear characteristics of the term structure of interest rates.On the one hand,for the monetary authorities,incorporating the business cycle can make the interaction between macro fundamentals and the yield curve more obvious,and then provide an important reference for the moderate changing of monetary policy;On the other hand,by adopting mixed frequency data,it is possible to fit and predict the yield of government bonds more accurately and timely,thereby improving the timeliness of pricing of assets and risk management.