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An empirical analysis of the mexican term structure of interest rates

Author

Listed:
  • Josué Cortés Espada

    (Banco de México)

  • Carlos Capistrán

    (Banco de México)

  • Manuel Ramos-Francia

    (Banco de México)

  • Alberto Torres

    (Banco de México)

Abstract

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.

Suggested Citation

  • Josué Cortés Espada & Carlos Capistrán & Manuel Ramos-Francia & Alberto Torres, 2009. "An empirical analysis of the mexican term structure of interest rates," Economics Bulletin, AccessEcon, vol. 29(3), pages 2300-2313.
    • Handle: RePEc:ebl:ecbull:eb-09-00432
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    References listed on IDEAS

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    Cited by:

    1. Santiago García-Verdú & Manuel Ramos-Francia & Manuel Sánchez-Martínez, 2019. "TIIE-28 Swaps as Risk-Adjusted Forecasts of Monetary Policy in Mexico," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 9(02), pages 1-23, June.
    2. Jens H. E. Christensen & Eric Fischer & Patrick Shultz, 2019. "Bond Flows and Liquidity: Do Foreigners Matter?," Working Paper Series 2019-08, Federal Reserve Bank of San Francisco.
    3. Remy Beauregard & Jens H. E. Christensen & Eric Fischer & Simon Zhu, 2021. "Inflation Expectations and Risk Premia in Emerging Bond Markets: Evidence from Mexico," Working Paper Series 2021-08, Federal Reserve Bank of San Francisco.
    4. Ibarra-Ramírez Raúl, 2021. "The Yield Curve as a Predictor of Economic Activity in Mexico: The Role of the Term Premium," Working Papers 2021-07, Banco de México.
    5. Bulíř, Aleš & Vlček, Jan, 2021. "Monetary transmission: Are emerging market and low-income countries different?," Journal of Policy Modeling, Elsevier, vol. 43(1), pages 95-108.
    6. Alba Carlos & Cuadra Gabriel & Ibarra Raúl, 2023. "Effects of the Extraordinary Measures Implemented by Banco de México during the COVID-19 Pandemic on Financial Conditions," Working Papers 2023-03, Banco de México.
    7. Cortés Espada Josué Fernando & Ramos Francia Manuel, 2008. "An Affine Model of the Term Structure of Interest Rates in Mexico," Working Papers 2008-09, Banco de México.
    8. Christensen, Jens H.E. & Fischer, Eric & Shultz, Patrick J., 2021. "Bond flows and liquidity: Do foreigners matter?," Journal of International Money and Finance, Elsevier, vol. 117(C).
    9. García-Verdú Santiago, 2011. "On the Term Structure of Interest Rates of the Mexican Government," Working Papers 2011-18, Banco de México.

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    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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