Global Factors in the Term Structure of Interest Rates
IMF Working Papers, November 5, 2013
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Bibliographic details
- Authors: Mirko Abbritti, Salvatore Dell'Erba, Antonio Moreno, Sergio Sola
- Published: November 5, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475513516.001
Key findings
- The paper introduces global factors within a FAVAR framework in an empirical affine term structure model.
- Applying the method to a panel of international yield curves shows that global factors account for more than 80 percent of term premia in advanced economies.
- Global factors tend to explain long-term dynamics in yield curves.
- Domestic factors are more relevant to short-run movements in yield curves.
- The study uncovers a key role for global curvature in shaping term premia dynamics.
- This novel global curvature factor precedes global economic and financial instability.
- The global curvature factor coincides with immediate expectations of permanent expansionary monetary policy during the recent crisis.
Methodology and scope
- Framework: FAVAR (Factor-Augmented Vector Autoregression) within an empirical affine term structure model.
- Data: A panel of international yield curves (details in the Working Paper).
- Focus: Decomposition of term premia into global versus domestic components; identification of global curvature as a distinct factor.
Implications and interpretation
- Global factors dominate long-term term-premia variation in advanced economies (more than 80 percent).
- Short-run yield movements are driven primarily by domestic factors.
- Global curvature can serve as an early indicator of global economic and financial instability.
- The alignment of the global curvature factor with expectations of permanent expansionary monetary policy links global-term-premia dynamics to crisis-time policy expectations.