The Information in the Joint Term Structures of Bond Yields
42 Pages Posted: 21 Dec 2018
Date Written: December 21, 2018
Abstract
While standard no-arbitrage term structure models are estimated using nominal yields from a single country, a growing literature estimates joint models of yields in multiple countries or nominal and real yields from a single country. However, this paper argues that, in two of the most common applications joint modelling does not bring any material benefits in capturing the dynamics of bond yields. Joint models of US and German nominal yields do not offer economically significant advantages in fitting the cross section of yields or predicting future yields. We obtain similar results for joint models of US nominal and real yields.
Keywords: Affine term structure model, international interest rate co-movement, real interest rates
JEL Classification: F30, G12, G15
Suggested Citation: Suggested Citation