ESTIMATING THE TERM STRUCTURE OF INTEREST-RATES FOR MONETARY-POLICY ANALYSIS

We compare estimation of spot and implied forward interest rates from Swedish Treasury bill and Government bond yields with two functional f orms, the simple Nelson & Siegel (NS) and the complex Longstaff & Schw artz (LS). Monetary policy rather than financial analysis is in focus, which affects the evaluation criteria. NS is easier to use and has be tter convergence properties. LS is more flexible. For the data used, e stimates using NS and LS are close, with at most only marginally bette r fit for LS. The fit of NS seems satisfactory for monetary policy pur poses.