Inter-dependencies among Asian bond markets

Sowmya Subramaniam and Krishna P. Prasanna

Studies in Economics and Finance, 2017, vol. 34, issue 4, 485-505

Abstract: Purpose - The purpose of the paper is to investigate the global and regional influences on the domestic term structure of nine Asian economies. Design/methodology/approach - The dynamic Nelson Siegel model was used to extract the latent factors of a country’s yield curve movements in a state-space framework using the Kalman filter. The global and regional factors of the yield curve were extracted using the dynamic factor model. Further, the Bayesian inference of Gibbs sampling approach was used to identify the influence of global and regional factors on the domestic yield curve. Findings - The results suggest that financial integration does not reduce the control of monetary authorities on the front end of the yield curve, and long-term interest rate is the potential transmission channel through which the contagion of the financial crisis spreads. Practical implications - The results of this study would help the monetary authorities to understand the efficacy of the monetary policy transmission mechanism. It also offers the global investors diversification opportunities for investing in the Asian bond markets. Originality/value - It is one of the earliest attempts to capture the global and regional yield curve movements and their impact on the emerging Asian economies yield curve. It contributes to literature by identifying the linkages in the long-term factor that is the potential channel through which crisis spreads.

Keywords: Global financial crisis; Dynamic Nelson Siegel model; Global yield curve (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:eme:sefpps:sef-11-2015-0273

DOI: 10.1108/SEF-11-2015-0273

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