Comparing Analysis of the Term Structures with Macro Variables in Two Separate Markets in China

In this paper, we use the dynamic Nelson-Siegel Svensson approach to establish the term structures for two separate markets in China the exchange market and the inter-bank market. After comparing the different parameters of the two models, we found that the separate markets have totally different term structure due to the market separation. Then we use the parameters of the term structure models and macro variables to establish VAR models to measure the relationship between the term structure and macro variables. We can conclude from the study that the term structure from different market has different relationship with the macro variables.