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

Bertrand Candelon () and Rubens Moura
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Bertrand Candelon: Université catholique de Louvain, LIDAM/LFIN, Belgium

No 2024003, LIDAM Reprints LFIN from Université catholique de Louvain, Louvain Finance (LFIN)

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)
Pages: 30
Date: 2024-05-08
Note: In: Journal of Financial Econometrics, 2024
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Related works:
Journal Article: 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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Persistent link: https://EconPapers.repec.org/RePEc:ajf:louvlr:2024003

DOI: 10.1093/jjfinec/nbae008

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