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The Three Intelligible Factors of the Yield Curve in Mexico

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  • Elizondo Rocío

Abstract

This document estimates for México the three intelligible factors of the yield curve considered in Lengwiler and Lenz (2010), for the period 2001-2019. These factors are related to interest rates of different maturities and are identified as the long, short and curvature factors. The most important results highlight that the long and short factors have their greatest influence on the longest- and shortest-term rates, respectively. In addition, their trajectories are related with the 10-year rate and the bank funding rate. On the other hand, the curvature factor weighs most in the 3- to 24-months and its dynamics is similar to the expectation of the short-term rate estimated for Mexico. Thus, factor can be considered as an indicator of monetary policy expectations. Furthermore, the results found for México are similar to the stylized facts found for advanced economies from 1999 to 2010. For an extended sample until 2021, the results remain unchanged.

Suggested Citation

  • Elizondo Rocío, 2023. "The Three Intelligible Factors of the Yield Curve in Mexico," Working Papers 2023-13, Banco de México.
    • Handle: RePEc:bdm:wpaper:2023-13
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    File URL: https://www.banxico.org.mx/publicaciones-y-prensa/documentos-de-investigacion-del-banco-de-mexico/%7BF0E3B71D-B383-2695-5E3A-31AAD3E59303%7D.pdf
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    More about this item

    Keywords

    Intelligible factors; yield curve; state-space models;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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