Joint Modelling of International Yield Curves

19 Pages Posted: 13 Dec 2007

See all articles by Matti Koivu

Matti Koivu

European Central Bank (ECB)

Ken Nyholm

European Central Bank (ECB)

Jacob Stromberg

European Central Bank (ECB)

Date Written: December 2007

Abstract

In this paper we propose a new approach to modelling and estimating yield curves across multiple currency areas. The idea is that one area acts as the 'cardinal' economy by affecting the yield curve evolution in the other markets. To some extent, the yield curve factors of the 'cardinal economy' serve the role as global yield curve factors. The adopted methodology is inspired by the 3-factor Nelson-Siegel yield curve model where a particular loading structure is identified for the 'non-cardinal' currency areas. Using US, German and Japanese data the model is shown to fit well both the cross-sectional and time-series dynamics of yields.

Keywords: Multiple yield curve model, Principal component analysis, State-space model

JEL Classification: C32, C33, C51, E43

Suggested Citation

Koivu, Matti and Nyholm, Ken and Stromberg, Jacob, Joint Modelling of International Yield Curves (December 2007). Paris December 2007 Finance International Meeting AFFI-EUROFIDAI Paper, Available at SSRN: https://ssrn.com/abstract=1071667 or http://dx.doi.org/10.2139/ssrn.1071667

Matti Koivu (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Ken Nyholm

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Jacob Stromberg

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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