Global Trade Network and Term Premia Dynamics

58 Pages Posted: 12 Aug 2022 Last revised: 11 Feb 2024

See all articles by Ai Jun Hou

Ai Jun Hou

Stockholm University

Caihong Xu

Stockholm University - Stockholm Business School

Xiaoxia Ye

University of Exeter Business School - Department of Finance

Date Written: February 10, 2024

Abstract

This paper investigates how the global trade network provides channels for term premia co-move and transmit across countries. We develop a network term structure model and demonstrate how term premia could decline with trade network centrality. We then empirically test our theoretical predictions using both trade data and bond yields from 37 countries. Our results identify two channels: common shocks and bilateral trades. Term premia co-movement and transmission are more pronounced among developed countries than developing countries. The findings underscore the trade network’s crucial role in the propagation of local term premium shocks in the global macroeconomy.

Keywords: Term structure of interest rates, Term premium, Global trade network

JEL Classification: C32, C58, C52

Suggested Citation

Hou, Ai Jun and Xu, Caihong and Ye, Xiaoxia, Global Trade Network and Term Premia Dynamics (February 10, 2024). Available at SSRN: https://ssrn.com/abstract=4182576 or http://dx.doi.org/10.2139/ssrn.4182576

Ai Jun Hou (Contact Author)

Stockholm University ( email )

Universitetsvägen 10
Stockholm, Stockholm SE-106 91
Sweden

Caihong Xu

Stockholm University - Stockholm Business School ( email )

Roslagsvägen 1010
Stockholm, SE-106 91
Sweden

Xiaoxia Ye

University of Exeter Business School - Department of Finance ( email )

Streatham Court
Exeter, EX4 4PU
United Kingdom

HOME PAGE: http://www.xiaoxiaye.me/

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