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Term structure of interest rate and macro economy: an empirical study on selected emerging countries sovereign bond

Author

Listed:
  • Doddy Ariefianto
  • Citra Amanda
  • Zaafri Ananto Husodo

Abstract

Purpose - To examine the relationship between the term structure of interest rates of sovereign bonds in emerging nations and their macroeconomic indicators, specifically emphasizing its persistence and interaction with inflation, foreign exchange and fiscal conditions. Design/methodology/approach - Adopting the Mean Group Instrumental Variables (MGIV) technique, as proposed by Cuiet al. (2020) and Norkuteet al. (2021), this study analyzes a monthly panel dataset from nine emerging economies spanning January 2010 to October 2021, totaling 1,278 observations. Findings - The findings reveal significant persistence in both slope and curvature, with a rising yield level linked to the term structure's flattening, while shifts in inflation and exchange rates correlate with its steepening. Originality/value - Our study is among the few which used an empirically constructed measure of the term structure of interest instead of a theoretical construct. To best our knowledge, we are the first to employ MGIV.

Suggested Citation

  • Doddy Ariefianto & Citra Amanda & Zaafri Ananto Husodo, 2024. "Term structure of interest rate and macro economy: an empirical study on selected emerging countries sovereign bond," Journal of Capital Markets Studies, Emerald Group Publishing Limited, vol. 8(2), pages 195-211, September.
    • Handle: RePEc:eme:jcmspp:jcms-05-2024-0022
    DOI: 10.1108/JCMS-05-2024-0022
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    More about this item

    Keywords

    Term structure of interest; Slope; Curvature; Financial stability; Mean group instrumental variables; Panel econometric; C23; E43; E44; E52; F31; G12;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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