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An empirical analysis of the mexican term structure of interest rates

  • Josué Cortés Espada

    ()

    (Banco de México)

  • Carlos Capistrán

    ()

    (Banco de México)

  • Manuel Ramos-Francia

    ()

    (Banco de México)

  • Alberto Torres

    ()

    (Banco de México)

Little is known about the behavior of the term structure of interest rates in emerging markets. In this paper we study the dynamics of the term-structure of interest rates in Mexico between 2001 and 2008. We find that term-premia appears to be time-varying, and that over 99% of the total variation in the yield curve can be explained by three factors: level, slope, and curvature. We also show that the level factor is positively correlated with measures of long-term inflation expectations and that the slope factor is negatively correlated with the overnight interest rate. Hence, we document that the term structure in Mexico, despite its relatively short existence, seems to behave as in markets that have more developed financial systems.

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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 29 (2009)
Issue (Month): 3 ()
Pages: 2300-2313

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Handle: RePEc:ebl:ecbull:eb-09-00432
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  1. Glenn D. Rudebusch & Tao Wu, 2003. "A macro-finance model of the term structure, monetary policy, and the economy," Working Paper Series 2003-17, Federal Reserve Bank of San Francisco.
  2. Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
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  9. Diebold, Francis X. & Rudebusch, Glenn D. & Borag[caron]an Aruoba, S., 2006. "The macroeconomy and the yield curve: a dynamic latent factor approach," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 309-338.
  10. Serge Jeanneau & Camilo E Tovar, 2006. "Domestic bond markets in Latin America: achievements and challenges," BIS Quarterly Review, Bank for International Settlements, June.
  11. Charles L. Evans & David A. Marshall, 1997. "Monetary policy and the term structure of nominal interest rates: evidence and theory," Working Paper Series, Macroeconomic Issues WP-97-10, Federal Reserve Bank of Chicago.
  12. Wu, Tao, 2006. "Macro Factors and the Affine Term Structure of Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(7), pages 1847-1875, October.
  13. John Y. Campbell, 1995. "Some Lessons from the Yield Curve," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 129-152, Summer.
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