Global Factors in the Term Structure of Interest Rates

Mirko Abbritti, Salvatore Dell’Erba, Antonio Moreno () and Sergio Sola
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Salvatore Dell’Erba: International Monetary Fund

International Journal of Central Banking, 2018, vol. 14, issue 2, 301-340

Abstract: This paper introduces unspanned global factors within a FAVAR framework in a flexible reduced-form affine term structure model. We apply our method to a panel of international yield curves and show that global factors account for more than 80 percent of term premiums in advanced economies. In particular, they tend to explain long-term dynamics in yield curves, as opposed to domestic factors which are instead more relevant for short-run movements. We uncover a key role for the third principal component of the global term structure in shaping risk-neutral rates and term premium dynamics, especially in the post-2007 period.

JEL-codes: C32 E43 F41 G12 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (18)

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Related works:
Working Paper: Global Factors in the Term Structure of Interest Rates (2014)
Working Paper: Global Factors in the Term Structure of Interest Rates (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2018:q:1:a:7

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