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On the Term Structure of Interest Rates of the Mexican Government

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  • García-Verdú Santiago

Abstract

This paper, first, reviews briefly the literature on the term structure of interest rates, citing some of the most important studies done on the topic for the Mexican case in the last years. In addition, the development of the government debt market is described. Second, evidence against the expectation hypothesis is shown and the deviations of the term structure from this hypothesis are examined. Third, it is documented that much of the variability of the term structure is due to changes in its level. Fourth, some of the statistics of the term structure are associated with macroeconomic variables, specifically the short-term rate and the output gap as measured with the IGAE index. Regarding this last point, evidence is found that changes in the term structure of interest rates' slope are associated with the monetary policy stand along the business cycle. The nominal interest rates used in the analysis go from July 2002 to June 2011.

Suggested Citation

  • García-Verdú Santiago, 2011. "On the Term Structure of Interest Rates of the Mexican Government," Working Papers 2011-18, Banco de México.
    • Handle: RePEc:bdm:wpaper:2011-18
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    File URL: https://www.banxico.org.mx/publicaciones-y-prensa/documentos-de-investigacion-del-banco-de-mexico/%7BDE268D6C-7274-B66C-452A-B66311E2869C%7D.pdf
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    References listed on IDEAS

    as
    1. Sargent, Thomas J, 1972. "Rational Expectations and the Term Structure of Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 4(1), pages 74-97, Part I Fe.
    2. Eduardo Borensztein & Kevin Cowan & Barry Eichengreen & Ugo Panizza (ed.), 2008. "Bond Markets in Latin America: On the Verge of a Big Bang?," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262026325, April.
    3. Serge Jeanneau & Camilo E Tovar, 2006. "Domestic bond markets in Latin America: achievements and challenges," BIS Quarterly Review, Bank for International Settlements, June.
    4. John C. Cox & Jonathan E. Ingersoll Jr. & Stephen A. Ross, 2005. "A Theory Of The Term Structure Of Interest Rates," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 5, pages 129-164, World Scientific Publishing Co. Pte. Ltd..
    5. Monika Piazzesi & Martin Schneider, 2007. "Equilibrium Yield Curves," NBER Chapters, in: NBER Macroeconomics Annual 2006, Volume 21, pages 389-472, National Bureau of Economic Research, Inc.
    6. 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.
    7. Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, vol. 5(2), pages 177-188, November.
    8. Ang, Andrew & Piazzesi, Monika, 2003. "A no-arbitrage vector autoregression of term structure dynamics with macroeconomic and latent variables," Journal of Monetary Economics, Elsevier, vol. 50(4), pages 745-787, May.
    9. 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.
    10. Daniel Chiquiar & Antonio Noriega & Manuel Ramos-Francia, 2010. "A time-series approach to test a change in inflation persistence: the Mexican experience," Applied Economics, Taylor & Francis Journals, vol. 42(24), pages 3067-3075.
    11. Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, vol. 60(4), pages 473-489, October.
    12. Darrell Duffie & Rui Kan, 1996. "A Yield‐Factor Model Of Interest Rates," Mathematical Finance, Wiley Blackwell, vol. 6(4), pages 379-406, October.
    13. Sara Gabriela Castellanos, 2002. "El efecto del corto sobre la estructura de tasas de interés," Monetaria, CEMLA, vol. 0(2), pages 161-204, abril-jun.
    14. Cortés Espada Josué Fernando & Ramos Francia Manuel, 2008. "A Macroeconomic Model of the Term Structure of Interest Rates in Mexico," Working Papers 2008-10, Banco de México.
    15. Ang, Andrew & Piazzesi, Monika & Wei, Min, 2006. "What does the yield curve tell us about GDP growth?," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 359-403.
    16. Luenberger, David G., 1997. "Investment Science," OUP Catalogue, Oxford University Press, number 9780195108095.
    17. repec:bla:ecorec:v:64:y:1988:i:185:p:120-27 is not listed on IDEAS
    18. Vasicek, Oldrich Alfonso, 1977. "Abstract: An Equilibrium Characterization of the Term Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(4), pages 627-627, November.
    19. Ross Guest & Alan McLean, 1998. "New evidence on the expectations theory of the term structure of Australian Commonwealth Government Treasury yields," Applied Financial Economics, Taylor & Francis Journals, vol. 8(1), pages 81-87.
    20. Balduzzi, Pierluigi & Bertola, Giuseppe & Foresi, Silverio, 1997. "A model of target changes and the term structure of interest rates," Journal of Monetary Economics, Elsevier, vol. 39(2), pages 223-249, July.
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    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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