The Information in the Joint Term Structures of Bond Yields

42 Pages Posted: 21 Dec 2018

See all articles by Andrew Meldrum

Andrew Meldrum

Board of Governors of the Federal Reserve System

Marek Raczko

Bank of England

Peter Spencer

University of York

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

Meldrum, Andrew and Raczko, Marek Andrzej and Spencer, Peter, The Information in the Joint Term Structures of Bond Yields (December 21, 2018). Bank of England Working Paper No. 772, Available at SSRN: https://ssrn.com/abstract=3305238 or http://dx.doi.org/10.2139/ssrn.3305238

Andrew Meldrum (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Marek Andrzej Raczko

Bank of England ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

Peter Spencer

University of York ( email )

Heslington
York, YO1 5DD
United Kingdom

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