Decomposing Global Yield Curve Co-Movement

61 Pages Posted: 21 Jul 2017 Last revised: 29 Jul 2019

See all articles by Joseph Byrne

Joseph Byrne

Heriot-Watt University - Department of Accountancy, Economics and Finance

Shuo Cao

Shenzhen Stock Exchange; City University of Hong Kong (CityUHK)

Dimitris Korobilis

University of Glasgow - Adam Smith Business School

Date Written: July 26, 2019

Abstract

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

Byrne, Joseph and Cao, Shuo and Korobilis, Dimitris, Decomposing Global Yield Curve Co-Movement (July 26, 2019). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3005064 or http://dx.doi.org/10.2139/ssrn.3005064

Joseph Byrne

Heriot-Watt University - Department of Accountancy, Economics and Finance ( email )

Scotland
United Kingdom

Shuo Cao (Contact Author)

Shenzhen Stock Exchange ( email )

2012 Shennan Blvd., Futian District
Shenzhen
China

City University of Hong Kong (CityUHK) ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Dimitris Korobilis

University of Glasgow - Adam Smith Business School ( email )

40 University Avenue
Gilbert Scott Building
Glasgow, Scotland G12 8QQ
United Kingdom

HOME PAGE: http://https://sites.google.com/site/dimitriskorobilis/

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