A Multicountry Model of the Term Structures of Interest Rates with a GVAR

Bertrand Candelon and Rubens Moura

No 2021007, LIDAM Discussion Papers LFIN from Université catholique de Louvain, Louvain Finance (LFIN)

Abstract: Global interdependencies have caused affine term structure models (AT SMs) to adopt a multicountry dimension. Nevertheless, recent referenced AT SMs face issues of tractability as the model dimension becomes larger. To close this gap, this paper proposes a AT SM in which the risk factor dynamics follow a global vector-autoregressive (GV AR). AT SM − GV AR renders a parsimonious yield curve parametrization, which allows for a fast estimation process, enables meaningful statistical inference of economic relationships, and produces accurate bond yields out-of-sample forecasting. To empirically illustrate our novel AT SM, we build a markedly integrated economic system composed of three Latin American economies and China. We find that, consequent to its prominent role in the worldwide economy, China’s economic stances have nonnegligible impacts on Latin American yield curve dynamics.

Keywords: Term Structure of Interest Rates; Global Financial Market; GVAR (search for similar items in EconPapers)
JEL-codes: C58 E44 G15 (search for similar items in EconPapers)
Pages: 43
Date: 2021-08-01
New Economics Papers: this item is included in nep-fdg and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: A Multicountry Model of the Term Structures of Interest Rates with a GVAR* (2024)
Working Paper: A Multicountry Model of the Term Structures of Interest Rates with a GVAR (2024)
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