Analyzing the Dynamics of Nelson-Siegel-Svensson Term Structure Models Using Time Series Data*

The aim of this study is to analyze the specific dynamics of the term structure of interest rates. The methodology used to construct the yield curve is based on the Nelson-Siegel-Svensson model. Latent factors influence the term structure of interest rates based on several parameters (levels, slopes, and curvatures) that evolve over time in a deterministic manner. To better model the temporal structure of different maturities, principal component analysis is used to identify the factors responsible for variations in the observed realizations of the yield curve. Once the aggregate curve is constructed, a non-stationarity analysis is applied to identify the generating process and the specific dynamics of the term structure of interest rates. The results indicate that the Moroccan bond market follows a random walk without drift. This provides a first indication of the efficiency of this market since 2004.