Dissecting the yield curve: The international evidence

Andrea Berardi and Alberto Plazzi

Journal of Banking & Finance, 2022, vol. 134, issue C

Abstract: We develop a term structure model that decomposes nominal yields into the sum of an expectation, term premium, and convexity term and in turn of their real and inflation counterparts. The model explicitly captures the interrelation between yield-only and macroeconomic factors while allowing for aggregate stochastic volatility. We extract the components from the nominal and real yield curve of the United States, the Euro Area, the United Kingdom, and Japan. We find that short-rate expectations have steadily declined over the last two decades and account for the bulk of yield dynamics. Term premia increase with maturity but explain a smaller fraction of yield forecast error variance than previously documented. With regard to yield comovement, the United States generates the strongest spillovers at the long end of the yield curve, whereas the Japanese market is the top importer of shocks.

Keywords: Term structure; Term premium; Yield volatility; Macro factors; Comovement (search for similar items in EconPapers)
JEL-codes: C58 E43 E44 G12 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Dissecting the Yield Curve: The International Evidence (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:134:y:2022:i:c:s0378426621002429

DOI: 10.1016/j.jbankfin.2021.106286

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