Decomposing global yield curve co-movement

Joseph Paul Byrne, Shuo Cao, Dimitris Korobilis

Research output: Contribution to journalArticle

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.
Original languageEnglish
Pages (from-to)500-513
Number of pages14
JournalJournal of Banking and Finance
Volume106
Early online date27 Jul 2019
DOIs
Publication statusPublished - Sep 2019

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