Estimating Forward Interest Rates – Abstract

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Estimating Forward Interest Rates with the Extended Nelson &
Siegel Method

Lars E.O. Svensson
Princeton University,
CEPR, and NBER (in 1995: IIES, Stockholm University)

Quarterly Review,
Sveriges Riksbank, 1995:3, 13-26

Several central banks use implied forward interest rates as one of their monetary policy indicators. The paper outlines a convenient and for monetary policy purposes sufficiently precise method to estimate implied forward interest rates from Treasury bill and coupon bond data. The method uses an extended and more flexible variant of Nelson and Siegel’s functional form. Minimization of both price errors and yield errors is discussed.