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New estimates of the UK real and nominal yield curves

Author

Listed:
  • Nicola Anderson
  • John Sleath
Abstract
This paper presents some new estimates of the UK real and nominal yield curves. These estimates are derived using a spline-based technique modified for the UK government bond markets. At the short end of the nominal yield curve, additional data are included from the GC repo market. Estimates of the real yield curve are derived from the prices of index-linked gilts. It is found that the new yield curves outperform existing methods on a number if criteria that are designed to examine the suitability of estimates for the purpose of assessing monetary conditions. In particular, the estimates are found to be smooth across maturity while having sufficient flexibility to describe the shape of the curve at shorter maturities where expectations are relatively precise. The curves are also robust to small errors in the data.

Suggested Citation

  • Nicola Anderson & John Sleath, 2001. "New estimates of the UK real and nominal yield curves," Bank of England working papers 126, Bank of England.
    • Handle: RePEc:boe:boeewp:126
    as

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    File URL: http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/2001/wp126.pdf
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    References listed on IDEAS

    as
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    3. Mark Fisher & Douglas Nychka & David Zervos, 1995. "Fitting the term structure of interest rates with smoothing splines," Finance and Economics Discussion Series 95-1, Board of Governors of the Federal Reserve System (U.S.).
    4. Daniel F. Waggoner, 1997. "Spline methods for extracting interest rate curves from coupon bond prices," FRB Atlanta Working Paper 97-10, Federal Reserve Bank of Atlanta.
    5. Mark Deacon & Andrew Derry, 1994. "Deriving Estimates of Inflation Expectations from the Prices of UK Government Bonds," Bank of England working papers 23, Bank of England.
    6. Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, vol. 60(4), pages 473-489, October.
    7. McCulloch, J Huston, 1975. "The Tax-Adjusted Yield Curve," Journal of Finance, American Finance Association, vol. 30(3), pages 811-830, June.
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