Dissecting the Yield Curve: The International Evidence

Andrea Berardi and Alberto Plazzi
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Andrea Berardi: Ca Foscari University of Venice - Dipartimento di Economia

No 19-73, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Using a stochastic volatility affine term structure model, we explicitly consider the interrelation between yield curves and macro and volatility factors. We provide estimates of short rate expectations, term premium and convexity of nominal yields and for their real and inflation components for four different currency areas: US, Euro Area, UK, and Japan. We find that in all areas there are non-negligible convexity effects in correspondence with high volatility periods, and that term premium and convexity explain a significant proportion of the dynamics at the long end of the yield curve. Using panel regressions, we show that, overall, short rate expectations are procyclical while term premia exhibit a countercyclical behaviour and tend to increase with yield volatility. We also detect strong cross-country co-movements both in short rate expectations and term premia, with the degree of connectedness exhibiting significant time variation..

Keywords: Term structure; Term premia; Yield volatility; Macro factors (search for similar items in EconPapers)
JEL-codes: C58 E43 E44 G12 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2019-06
New Economics Papers: this item is included in nep-eec, nep-mac and nep-mon
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Journal Article: Dissecting the yield curve: The international evidence (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1973

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