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A0536
Title: A multi-country model of the term structures of interest rates with a GVAR Authors:  Rubens Moura - Université catholique de Louvain (Belgium) [presenting]
Bertrand Candelon - IPAG business school (France)
Abstract: Globalization induced Macro-Finance affine term structure models (ATSM) to account for cross-borders developments. Still, reference models face issues of tractability and identification of shocks. A Global Vector Autoregressive (GVAR) is used to model the dynamics of the risk factors within an affine term structure setting. Our framework is more parsimonious and offers a more purposeful strategy to identify structural shocks. As a result, model estimation is more tractable, and the economic results are more meaningful. Furthermore, the estimation of our GVAR-ATSM is about 3 to 5 times faster than alternative benchmark specifications. The GVAR-ATSM is illustrated by the yield curve of three Latin American economies (Brazil, Mexico, and Uruguay) and China. It appears that economic activity in China impacts the interest rate significantly in these Latin American countries.