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Specification analysis of interest rates factors : an international perspective

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  • Le Fol, Gaëlle

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  • Tiozzo Pezzoli, Luca
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    Abstract

    The aim of this thesis is to model the dynamics of international term structure of interest rates taking into consideration several dependence channels.Thanks to a new international Treasury yield curve database, we observe that the explained variability decision criterion, suggested by the literature, is not able to select the best combination of factors characterizing the joint dynamics of yield curves. We propose a new methodology based on the maximisation of the likelihood function of a Gaussian state-space model with common and local factors. The associated identification problem is solved in an innovative way. By estimating several sets of countries, we select two global (and three local) factors which are also useful to forecast macroeconomic variables in each considered economy.In addition, our method allows us to detect hidden factors in the international bond returns. They are not visible through a classical principal component analysis of expected bond returns but they are helpful to forecast inflation and industrial production. Keywords: International treasury yield curves, common and local factors, state-space models, EM algorithm, International bond risk premia, principal components.

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    This book is provided by Paris Dauphine University in its series Economics Thesis from University Paris Dauphine with number 123456789/13417 and published in 2013.

    Order: http://basepub.dauphine.fr/xmlui/handle/123456789/13417
    Handle: RePEc:dau:thesis:123456789/13417

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    Related research

    Keywords: Courbes des taux internationales; Facteurs communs et locaux; Modèle espace-état; Algorithme EM; Rentabilités en excès des obligations; Analyse en composantes principales; Inflation; Croissance économique; International treasury yield curves; Common and local factors; State-space models; EM algorithm; International bond risk premia; Principal components; Inflation; Economic growth;

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