Working Paper: NBER ID: w13588
Authors: Francis X. Diebold; Canlin Li; Vivian Z. Yue
Abstract: The popular Nelson-Siegel (1987) yield curve is routinely fit to cross sections of intra-country bond yields, and Diebold and Li (2006) have recently proposed a dynamized version. In this paper we extend Diebold-Li to a global context, modeling a potentially large set of country yield curves in a framework that allows for both global and country-specific factors. In an empirical analysis of term structures of government bond yields for the Germany, Japan, the U.K. and the U.S., we find that global yield factors do indeed exist and are economically important, generally explaining significant fractions of country yield curve dynamics, with interesting differences across countries.
Keywords: Yield Curve; Dynamic Nelson-Siegel; Global Financial Markets
JEL Codes: C01; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Global yield factors (E23) | Country yield factors (F16) |
| Variation in global level factor (F62) | Variation in country level factors (O57) |
| Global yield factors (E23) | Country-specific yield dynamics (E43) |
| Global yield factors (E23) | Variation in country-specific yields (O57) |
| Country yield factors (F16) | Global yield factors (E23) |