Global Factors in the Term Structure of Interest Rates

42 Pages Posted: 10 Dec 2013

See all articles by Mirko Abbritti

Mirko Abbritti

Università degli Studi di Perugia

Salvatore Dell'Erba

University of Geneva - Graduate Institute of International Studies (HEI)

Antonio Moreno

School of Economics and Business, University of Navarra

Sergio Sola

International Monetary Fund (IMF)

Date Written: November 2013

Abstract

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.

Keywords: Interest rate structures, Bonds, Monetary policy, Developed countries, Economic models, Yield Curve, Global Factors, FAVAR, Affine Term Structure Models, Term Premium, inflation, monetary economics, expansionary monetary policy, monetary policies, economic instability, inflation forecasts, expansionary monetary policies, monetary fund, real interest rate, reduction of inflation, monetary authorities, inflationary expectations

JEL Classification: C32, E43, F41, G12

Suggested Citation

Abbritti, Mirko and Dell'Erba, Salvatore and Moreno, Antonio and Sola, Sergio, Global Factors in the Term Structure of Interest Rates (November 2013). IMF Working Paper No. 13/223, Available at SSRN: https://ssrn.com/abstract=2365841

Mirko Abbritti

Università degli Studi di Perugia ( email )

Italy

Salvatore Dell'Erba

University of Geneva - Graduate Institute of International Studies (HEI) ( email )

Avenue de la paix 11A
Geneva, CH-1202
Switzerland

Antonio Moreno

School of Economics and Business, University of Navarra ( email )

Ed. Amigos
Pamplona, Navarra 31009
Spain

Sergio Sola

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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