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Yield curve interactions with the macroeconomic factors during global financial crisis among Asian markets

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  • Sowmya, Subramaniam
  • Prasanna, Krishna

Abstract

This study examines the interaction between the yield curve movements and the macro economic factors among the nine Asian sovereign bond markets. The yield curve and macro-economic variables were jointly modelled in the dynamic Nelson Siegel model framework and are fitted in the vector auto regressive (VAR) process in a state space framework. The results indicate the existence of a bi-directional relationship between the yield curve and macro factors in the Asian economies. The study found that both the policy rate and the inflation rate influence the short end of the yield curve, reflecting an effective management of the monetary policy. While output growth strongly leads the long term rates in the region, steepening of the yield curve causes increase in Inflation. The depreciation of exchange rates led to increase the level factor in emerging economies and the increase in slope factor appreciated the exchange rates in developed Asian markets.

Suggested Citation

  • Sowmya, Subramaniam & Prasanna, Krishna, 2018. "Yield curve interactions with the macroeconomic factors during global financial crisis among Asian markets," International Review of Economics & Finance, Elsevier, vol. 54(C), pages 178-192.
    • Handle: RePEc:eee:reveco:v:54:y:2018:i:c:p:178-192
    DOI: 10.1016/j.iref.2017.08.006
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    More about this item

    Keywords

    Yield curve; Economic activity; Macroeconomic factors; Dynamic Nelson Siegel model; Sovereign bond markets; Monetary policy;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G01 - Financial Economics - - General - - - Financial Crises
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G2 - Financial Economics - - Financial Institutions and Services

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