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

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  • Byrne, Joseph P.
  • Fazio, Giorgio
  • Fiess, Norbert

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.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 36 (2012)
Issue (Month): 1 ()
Pages: 183-192

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Handle: RePEc:eee:jbfina:v:36:y:2012:i:1:p:183-192

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Web page: http://www.elsevier.com/locate/jbf

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Keywords: Short interest rates; Long interest rates; Financial globalization; Panel data; Factor models;

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Citations

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Cited by:
  1. Joseph P. Byrne & Giorgio Fazio & Norbert Fiess, 2010. "Primary commodity prices: co-movements, common factors and fundamentals," Working Papers 2010_27, Business School - Economics, University of Glasgow.
  2. Byrne, Joseph P. & Fiess, Norbert, 2011. "International Capital Flows to Emerging and Developing Countries: National and Global Determinants," SIRE Discussion Papers 2011-03, Scottish Institute for Research in Economics (SIRE).
  3. Silvio Contessi & Pierangelo De Pace & Massimo Guidolin, 2013. "How did the financial crisis alter the correlations of U.S. yield spreads?," Working Papers 2013-005, Federal Reserve Bank of St. Louis.
  4. Sonali Jain-Chandra & D. Filiz Unsal, 2012. "The Effectiveness of Monetary Policy Transmission Under Capital Inflows," IMF Working Papers 12/265, International Monetary Fund.

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