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Yield curve interactions with the macroeconomic factors during global financial crisis among Asian markets

Subramaniam Sowmya and Krishna Prasanna

International Review of Economics & Finance, 2018, vol. 54, issue C, 178-192

Abstract: This study examines the interaction between the yield curve movements and the macro economic factors among the nine Asian sovereign bond markets. The yield curve and macro-economic variables were jointly modelled in the dynamic Nelson Siegel model framework and are fitted in the vector auto regressive (VAR) process in a state space framework. The results indicate the existence of a bi-directional relationship between the yield curve and macro factors in the Asian economies. The study found that both the policy rate and the inflation rate influence the short end of the yield curve, reflecting an effective management of the monetary policy. While output growth strongly leads the long term rates in the region, steepening of the yield curve causes increase in Inflation. The depreciation of exchange rates led to increase the level factor in emerging economies and the increase in slope factor appreciated the exchange rates in developed Asian markets.

Keywords: Yield curve; Economic activity; Macroeconomic factors; Dynamic Nelson Siegel model; Sovereign bond markets; Monetary policy (search for similar items in EconPapers)
JEL-codes: G12 G15 G01 C58 G2 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:reveco:v:54:y:2018:i:c:p:178-192