Term Premia Co-movement and Global Trade Network
53 Pages Posted: 12 Aug 2022 Last revised: 9 Oct 2022
Date Written: October 6, 2022
We study how the global trade network provides a channel through which term premia comove and transmit across countries. We develop a network term structure model to show why the term premia may decrease with the trade network centrality and conjuncture that the information contained in the trade network can predict the trading partners’ term premium change. We test our theoretical predictions using both trade data and bond yields across different maturities from 37 countries. We find that the links of the global trade network contain useful information in explaining the variations in term premia through time and across countries. Term premia co-movement and transmission are more pronounced among developed countries than developing countries. The theoretical and empirical evidence in this paper indicates the propagation of global and local country shocks transferring in the global macro-economy through the global trade network.
Keywords: Term structure of interest rates, Term premium, Global trade network
JEL Classification: C32, C58, C52
Suggested Citation: Suggested Citation