Mirko Abbritti

Global Factors in the Term Structure of Interest Rates

This paper introduces global factors within a FAVAR framework in an empirical affine term structure model. We apply our method to a panel of international yield curves and show that global factors account for more than 80 percent of term premia in advanced economies. In particular they tend to explain long-term dynamics in yield curves, as opposed to domestic factors which are instead more relevant to short-run movements. We uncover the key role for global curvature in shaping term premia dynamics. We show that this novel factor precedes global economic and financial instability. In particular, it coincides with immediate expectations of permanent expansionary monetary policy during the recent crisis.

Term Premium and Quantitative Easing in a Fractionally Cointegrated Yield Curve

The co-movement of US sovereign rates suggests a long-run common stochastic trend. Traditional cointegrated systems need to assume that interest rates are unit roots and thus imply non-stationary and non-mean-reverting dynamics. Based on recent econometric developments, we postulate and estimate a fractional cointegrated model (FCVAR) which allows for a mean-reverting stochastic trend. Our results point to the presence of such mean-reverting fractional cointegration among sovereign rates. The implied term premium is less volatile than the classic I(0) stationary and I(1) unit root models. Our analysis highlights the role of real factors (but not inflation) in shaping term premium dynamics. We further identify the dynamic effects of quantitative easing policies on our identified term premium. In contrast to the stationary-implied term premium, we find a significant term premium decline following these large-scale asset purchase programs. JEL Classification: C2, C3, E4, G1The co-movement of US sovereign rates suggests a long-run common stochastic trend. Traditional cointegrated systems need to assume that interest rates are unit roots and thus imply non-stationary and non-mean-reverting dynamics. Based on recent econometric developments, we postulate and estimate a fractional cointegrated model (FCVAR) which allows for a mean-reverting stochastic trend. Our results point to the presence of such mean-reverting fractional cointegration among sovereign rates. The implied term premium is less volatile than the classic I(0) stationary and I(1) unit root models. Our analysis highlights the role of real factors (but not in flation) in shaping term premium dynamics. We further identify the dynamic effects of quantitative easing policies on our identified term premium. In contrast to the stationary-implied term premium, we find a significant term premium decline following these large-scale asset purchase programs.