Title: Global and Regional Yield Curve Dynamics and Interactions: The Case of Some Asian Countries
Abstract: Abstract Since the Asian financial crisis in 1997–98, Asian countries have made continuous efforts to promote monetary and financial cooperation for developing regionally well-established bond markets. This paper empirically evaluates the developments of bond markets in the East-Asia region based on the recently developed empirical methodology of dynamic cross-country bond yield interactions. To this end, we use a two-step state space model to examine the existence of the global and regional factor and analyze the effect of both factors on four Asian countries’ yield curves. We find that both global and regional factors play an important role in explaining these countries’ yield factors, although the regional factor appears to have a smaller role than the global factor and that this result seems to be robust to different subsamples. We interpret this result as evidence on the existence of the regional commonality and on endeavors toward Asian bond markets. Keywords: Term structuredynamic factor modelKalman filterglobal yieldregional yieldBond marketJEL CLASSIFICATIONS : G1E4C5F3 Acknowledgements The authors thank Maria Gochoco-Bautista, Soyoung Kim, Jaymin Lee, Kwanho Shin and the participants of the Asian Financial and Monetary Integration conference, March 2011 in Seoul, South Korea, for their constructive comments and suggestions. Notes 1To generate appropriate initial values for the Kalman filter, we follow Morita and Bueno Citation(2008). In obtaining an initial value of the regional factor, we regress the principal components for four Asian factors on the principal components for all nine countries’ factors and take error terms as a proxy for the regional factor.
Publication Year: 2011
Publication Date: 2011-12-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 15
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