Determinants of the New Zealand Yield Curve: Domestic vs. Foreign Influences

Enzo Cassino, Neil Cribbens and Tugrul Vehbi (tugrul.vehbi@cantab.net)

No 14/19, Treasury Working Paper Series from New Zealand Treasury

Abstract: This paper examines the relationship between the New Zealand government yield curve and the contribution of global and domestic factors influencing it. We apply the Nelson and Siegel method, which has been widely used internationally for fitting a yield curve, to decompose it into three independent factors – level, slope and curvature. We then analyse the link between each New Zealand yield curve factor, the global factors and observable domestic and international macroeconomic variables. We find that approximately half the movement in the level factor for New Zealand, which drives the yield curve at long maturities, is explained by the global level factor. Meanwhile, the global slope factor explains around a third of the movement in New Zealand’s slope factor. Of the remaining domestically driven components, it is difficult to identify a significant role for any specific domestic macroeconomic variables. However, domestic variables have a larger impact on the slope and curvature factors as shorter maturities are more directly under the control of the monetary authority and react to macroeconomic fundamentals. The output gap in particular is highly relevant in explaining the slope of the yield curve.

Keywords: Term structure; Interest rate; Global yield; Dynamic factor model (search for similar items in EconPapers)
JEL-codes: C5 E4 G1 (search for similar items in EconPapers)
Pages: 27
Date: 2014-11
New Economics Papers: this item is included in nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://treasury.govt.nz/sites/default/files/2014-11/twp14-19.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nzt:nztwps:14/19

Access Statistics for this paper

More papers in Treasury Working Paper Series from New Zealand Treasury New Zealand Treasury, PO Box 3724, Wellington 6140, New Zealand. Contact information at EDIRC.
Bibliographic data for series maintained by CSS I&T Web & Publishing, The Treasury (web.publishing@cass.govt.nz).