Can We Explain the Sign-Switching Behavior of Cross-Country Interest Rate Correlations?

摘要: This paper considers the well established empirical fact that conditional correlations among cross-country interest rates switch signs. Switching implies an alternation of coupling and decoupling global bond markets over time. evidence is robust to alternative estimation schemes. Here we use a seminonparametric (SNP) model with BEKK-GARCH variance function estimate second moments both confirm these results provide auxiliary models for structural term structure models. Using extensive historical analysis, find major driving forces behind sign-switching behavior between Eurodollar rate Euroyen are synchronization dis-synchronization business cycles coordination discoordination monetary policies triggered by international financial market crashes. Especially, two more likely couple when U.S. Japan slip into recession while likelihood highest economies in expansion. We also explore whether proposed International Affine Term Structure Models (IATSMs) Quadratic (IQTSMs) able reproduce rates. small subset IATSMs can generate but only forgoing their ability describe other features such as positivity nominal rates, heteroskedasticity volatility, underlying state variables. In contrast, IQTSMs it without limiting dynamic features. MCMC-Efficient Method Moments (EMM), test performance reproducing correlations. The result suggests conclusively fail capture relatively successful ephemeral ones.