Dynamic Linkages Across Country Yield Curves: The Effects of Global and Local Yield Curve Factors on US, UK and German Yields

Laura Coroneo, Ian Garrett, Javier Sanhueza

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

We analyze the relationship between the yield curves of the USA, the UK and Germany using global and local factors. Our focus is on dynamic linkages across and between yield curves and factors. We disentangle the latent global and local factors contained in country factors, based on the Diebold and Li (J Econometrics 130:337–364, 2006) parametrization of Nelson and Siegel’s (1987) three factor model and a quasi-maximum likelihood approach. The results indicate that global factors explain on average 55% of the variance of yields. Using impulse response analysis, we examine the effects of shocks to the factors on yields. We find that the response of yields to shocks to global factors is larger and longer-lasting than the response to shocks to local factors.
Original languageEnglish
Title of host publicationNew Methods in Fixed Income Modeling
Subtitle of host publication Contributions to Management Science
PublisherSpringer
Pages205-222
Number of pages18
ISBN (Print)978-3319952840
DOIs
Publication statusPublished - 19 Aug 2018

Publication series

NameContributions to Management Science
ISSN (Print)1431-1941
ISSN (Electronic)2197-716X

Keywords

  • Dynamic factor model
  • Global factors
  • Local factors
  • Nelson-Siegel model
  • Yields

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