The effect of domestic and foreign macroeconomic factors on the United States term structure of interest rates.

摘要

For decades, factor models, developed under the continuous-time framework, have been the mainstream of studies of the term structure of interest rates. The majority of the continuous-time factor models, except Cox, Ingersoll, and Ross (1985), assumes exogenous linear diffusion processes, which are merely statements of the time series properties of the underlying factors and are not justified in terms of an underlying economic model.; Recently, researchers have started to incorporate domestic macroeconomic factors in explaining the observed yield curves. Thus far, these efforts primarily focus on empirical issues. The results are generally sensitive to sample selection and thus cannot provide a clear guide of how macro factors affect the yield curve.; In this paper, we develop a three-period, two-country general equilibrium model under the assumption of perfect foresight. This model generalizes existing term structure models in the sense that the real short- and long-term interest rates are both endogenous and incorporate both domestic and foreign macro factors. Our reduced-form solutions indicate that the relationship between the short- and long-term real interest rates and the underlying domestic and foreign macro factors are deeply nonlinear.; Using quarterly data for Canada, Japan, Germany, the U.K. and the U.S. from 1974:Q4 to 1998:Q4, we estimate the impact of domestic and foreign real GDPs and real government expenditures on the U.S. term structure of interest rates in spread form. The results indicate that our theoretical model tracks the historical U.S. real yield spreads fairly closely over the selected sample period. The non-U.S. factors are relatively important for the intermediate end of the spectrum, while U.S. macro factors contribute primarily to the long-term end of the U.S. term structure.