Global Trade Network and Term Premia Dynamics
58 Pages Posted: 12 Aug 2022 Last revised: 11 Feb 2024
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: Suggested Citation