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A factor model of term structure slopes in eurocurrency markets

Novales Cinca, Alfonso and Domínguez, Emilio (2002) A factor model of term structure slopes in eurocurrency markets. [ Documentos de trabajo del Instituto Complutense de Análisis Económico (ICAE); nº 0224, 2002, ]

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Abstract

This paper departs from previous research in dealing with dimensionality reduction in the space of
international term structure slopes. Recent empirical work has documented the existence of information in
the slope of the term structure which is relevant to forecast future changes in economic activity, and it is
additional to information in past economic activity, inflation, or in any leading indicator index [see
Estrella and Hardouvelis (1991), Stock and Watson (1988), Hardouvelis (1994) and Plosser and
Rouwenhorst (1994), among others]. This implies that a good forecasting model of term structure slopes
could be helpful to anticipate changes in economic activity with an even longer anticipation.


Item Type:Working Paper or Technical Report
Additional Information:

JEL Classification: E37, E43

Uncontrolled Keywords:Term structure of interest rates, Term structure slope, Principal components, Eurocurrencies
Subjects:Social sciences > Economics > Stock exchanges
Series Name:Documentos de trabajo del Instituto Complutense de Análisis Económico (ICAE)
Volume:2002
Number:0224
ID Code:7683
References:

De Grauwe, P., 1989, Is the European monetary system a DM-zone?, Working Paper, CEPR, London.

Domínguez, E., and A.Novales, 2000, Term structure relationships across countries in the eurocurrency markets, manuscript, Universidad Complutense, Madrid.

Estrella, A., and G.A.Hardouvelis, 1991, The term structure as a predictor of real economic activity, The Journal of Finance 46, 555-576.

Hardouvelis, G.A., 1994, The term structure spread and future changes in long and short rates in the G7 countries, Journal of Monetary Economics, 25, 59-76.

Kafakis, J.C. and D.M.Moschos, 1990, Interest rate linkages within the European monetary System: A time series analysis, Journal of Money, Credit and Banking 22, 388-394.

Katsimbris, G.M. and S.M.Miller, 1993, Interest rate linkages within the European monetary System: Further analysis, Journal of Money, Credit and Banking 25, 771-779.

Plosser, C.I. and Rouwenhorst, K.G., 1994, International term structures and real economic growth, Journal of Monetary Economics, 22, 133-155.

Stock, J. and M.Watson, 1988, Testing for common trends, Journal of the American Statistical Asociation, 1097-1107.

Von Hagen, J. and M.Fratiani, 1990, German dominance in the EMS: Evidence from interest rates, Journal of International Money and Finance, 18, 817-838.

Deposited On:04 Mar 2008
Last Modified:06 Feb 2014 07:55

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