Interest rate co-movements, global factors and the long end of the term spread

Joseph P. Byrne; Giorgio Fazio; Norbert Fiess

doi:10.1016/j.jbankfin.2011.07.002

Interest rate co-movements, global factors and the long end of the term spread

Joseph P. Byrne^*, Giorgio Fazio, Norbert Fiess

^*Corresponding author for this work

Economics

Research output: Contribution to journal › Article › peer-review

28 Citations (Scopus)

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Abstract

The decoupling of US short and long interest rates has been a distinctive feature of the 2000s. We employ recent advances in panel econometrics to document this disconnect for industrial countries and link it to a global latent factor in long term rates. We investigate whether international forces, such as global inflation, global output, or the global savings glut may be behind this global latent factor. The savings glut is the most likely contender, suggesting that reserve accumulation and a search for yield from emerging markets has lowered long rates internationally, driving a wedge between domestic short and long rates.

Original language	English
Pages (from-to)	183-192
Number of pages	10
Journal	Journal of Banking and Finance
Volume	36
Issue number	1
DOIs	https://doi.org/10.1016/j.jbankfin.2011.07.002
Publication status	Published - 31 Jan 2012

Funding

The authors wish to thank Serena Ng for making available her MATLAB codes, Carlo Altavilla, Charles Engle, Alex Kontonikas, Alex Kostakis, Ronnie MacDonald, Ian Marsh, participants at the 51st meeting of the Società Italiana degli Economisti in Catania, the editor and an anonymous referee for helpful suggestions. The usual disclaimer applies. Giorgio Fazio would like to acknowledge financial support from the Università degli Studi di Palermo (RS ex 60%, 2007).

Keywords

factor models
financial globalization
long interest rates
panel data
short interest rates

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10.1016/j.jbankfin.2011.07.002

Byrne-etal-JBF-2012-Interest-rates-co-movements-global-factorsAccepted author manuscript, 860 KBLicence: CC BY-NC-ND 4.0

Cite this

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Interest rate co-movements, global factors and the long end of the term spread

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