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Interest Rate Co-movements, Global Factors and the Long End of the Term Spread

  • Joseph P. Byrne
  • Giorgio Fazio
  • Norbert Fiess

The disconnect between rising short and low long interest rates has been a distinctive feature of the 2000s. Both research and policy circles have argued that international forces, such as global monetary policy (e.g. Rogoff, 2006); international business cycles (e.g. Borio and Filardo, 2007); or a global savings glut (e.g Bernanke, 2005) may be responsible. In this paper, we employ recent advances in panel data econometrics to document the disconnect and link it explicitly to the existence of a global latent factor that dominates the long end of the term spread for the recent period; the saving glut story emerges as the most likely contender for the global factor.

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Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2010_10.

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Date of creation: Mar 2010
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Handle: RePEc:gla:glaewp:2010_10
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