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Linkages in the term structure of interest rates across sovereign bond markets

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  • Sowmya, Subramaniam
  • Prasanna, Krishna
  • Bhaduri, Saumitra

Abstract

This paper investigates the linkages in the sovereign bond yields across different maturity spectrums among both developed and Asian countries. Term structure of interest rate is estimated using the Dynamic Nelson Siegel model and Kalman filter. The degrees of integration and transmission of shocks from one country to another are measured using forecast error variance decomposition in the generalized vector autoregression (VAR) model. The level factor showed higher spillover index across the countries. Regional influence is found to be higher in slope and curvature factors among the Asian countries. The linkages are high during periods of crisis.

Suggested Citation

  • Sowmya, Subramaniam & Prasanna, Krishna & Bhaduri, Saumitra, 2016. "Linkages in the term structure of interest rates across sovereign bond markets," Emerging Markets Review, Elsevier, vol. 27(C), pages 118-139.
    • Handle: RePEc:eee:ememar:v:27:y:2016:i:c:p:118-139
    DOI: 10.1016/j.ememar.2016.05.001
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    3. Sanjay Kumar Rout & Hrushikesh Mallick, 2020. "Transmission of International Financial Shocks: A Cross Country Analysis," Asian Development Policy Review, Asian Economic and Social Society, vol. 8(4), pages 236-259, December.
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    9. João Frois Caldeira & Rangan Gupta & Muhammad Tahir Suleman & Hudson S. Torrent, 2021. "Forecasting the Term Structure of Interest Rates of the BRICS: Evidence from a Nonparametric Functional Data Analysis," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 57(15), pages 4312-4329, December.
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    More about this item

    Keywords

    Yield curve; Dynamic Nelson Siegel model; Spillover; Linkages; Variance decompositions; Financial crisis;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G01 - Financial Economics - - General - - - Financial Crises
    • G2 - Financial Economics - - Financial Institutions and Services
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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