A Multicountry Model of the Term Structures of Interest Rates with a GVAR*

Bertrand Candelon and Rubens Moura

Journal of Financial Econometrics, 2024, vol. 22, issue 5, 1558-1587

Abstract: Extant multicountry affine term structure models (ATSMs) handle global financial interdependence at the cost of increasing model dimensionality. To address this challenge, we propose a novel no-arbitrage ATSM with risk factor dynamics following a global vector-autoregressive (GVAR). Compared to referenced benchmarks, the GVAR − ATSM offers a more parsimonious representation, enables a faster estimation process, produces more precise model estimates, yields more plausible term premia dynamics, and improves bond yield out-of-sample forecasting. Furthermore, our empirical findings reveal the significant impact of China’s economic stances on Latin American yield curve dynamics, underscoring its importance as a global economic player.

Keywords: global financial market; GVAR; term structure of interest rates (search for similar items in EconPapers)
JEL-codes: C58 E44 G15 (search for similar items in EconPapers)
Date: 2024
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Working Paper: A Multicountry Model of the Term Structures of Interest Rates with a GVAR (2024)
Working Paper: A Multicountry Model of the Term Structures of Interest Rates with a GVAR (2021)
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