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

Byrne, Joseph P. and Fazio, Giorgio and Fiess, Norbert (2012) Interest rate co-movements, global factors and the long end of the term spread. Journal of Banking and Finance, 36 (1). pp. 183-192. ISSN 0378-4266 (https://doi.org/10.1016/j.jbankfin.2011.07.002)

[thumbnail of Byrne-etal-JBF-2012-Interest-rates-co-movements-global-factors]
Preview
 Text. Filename: Byrne_etal_JBF_2012_Interest_rates_co_movements_global_factors.pdf
Accepted Author Manuscript
License: Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 logo
Download (880kB)| Preview

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.

CORE (COnnecting REpositories)