Global Factors in the Term Structure of Interest Rates

Author/Editor:

Mirko Abbritti ; Salvatore Dell'Erba ; Antonio Moreno ; Sergio Sola

Publication Date:

November 5, 2013

Electronic Access:

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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.

Series:

Working Paper No. 2013/223

Subject:

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

English

Publication Date:

November 5, 2013

ISBN/ISSN:

9781475513516/1018-5941

Stock No:

WPIEA2013223

Pages:

41

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