Decomposing the Yield Curve with Linear Regressions and Survey Information

The decomposition of bond yields into term premiums and average expected future short rates is impaired by the limited availability information about dynamics expectations component. Therefore, many studies require model-implied to be close rate from surveys. In this paper, I restrict variance changes in match survey relatively similar across markets thus provides a reliable source additional expectation formation investors. Technically, impose nonlinear restriction structure model Adrian, Crump, Moench (2013). show that typical small sample problems estimations can mitigated if on imposed. However, analysis also makes case for unrestricted they are based dataset with length macro finance, though.