Decomposing Global Yield Curve Co-Movement
61 Pages Posted: 21 Jul 2017 Last revised: 29 Jul 2019
Date Written: July 26, 2019
This paper studies the co-movement of global yield curve dynamics using a Bayesian hierarchical factor model augmented with macroeconomic fundamentals. Our data-driven approach is able to pin down the drivers of yield curve dynamics and produce plausible term premium estimates. We reveal the relative importance of global shocks through two transmission channels: policy and risk channels. Global inflation is the most important core macro fundamental affecting international yields, operating through a policy channel. Two identified global yield factors significantly influence global yield co-movements through a risk channel.
Keywords: Global Yield Curves, Co-Movement, Transmission Channels, Global Fundamentals, Sentiment, Economic Uncertainty, Bayesian Factor Model
JEL Classification: C11, C32, E43, F3, G12, G15
Suggested Citation: Suggested Citation