Global Factors in the Term Structure of Interest Rates

By Mirko Abbritti, Salvatore Dell'Erba, Antonio Moreno, Sergio Sola

November 5, 2013

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Format: Chicago

Mirko Abbritti, Salvatore Dell'Erba, Antonio Moreno, and Sergio Sola. Global Factors in the Term Structure of Interest Rates, (USA: International Monetary Fund, 2013) accessed December 3, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper introduces global factors within a FAVAR framework in an empirical affine term structure model. We apply our method to a panel of international yield curves and show that global factors account for more than 80 percent of term premia in advanced economies. In particular they tend to explain long-term dynamics in yield curves, as opposed to domestic factors which are instead more relevant to short-run movements. We uncover the key role for global curvature in shaping term premia dynamics. We show that this novel factor precedes global economic and financial instability. In particular, it coincides with immediate expectations of permanent expansionary monetary policy during the recent crisis.

Subject: Financial crises, Financial services, Global financial crisis of 2008-2009, Inflation, Monetary expansion, Monetary policy, Prices, Yield curve

Keywords: Affine Term Structure Models, Country-yield curves, Credit crisis, FAVAR, Global, Global factor, Global Factors, Global financial crisis of 2008-2009, Inflation, Monetary expansion, Monetary policy authority, Risk factor, Standard deviation, Term Premia, Term Premium, Term structure model, Treasury yield curve data, WP, Yield Curve, Yield curve curvature

Publication Details

Pages:

41
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/223
Stock No:

WPIEA2013223
ISBN:

9781475513516
ISSN:

1018-5941

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