An interpretation of an affine term structure model for Chile

Artikel

This paper attempts to provide an economic interpretation of the factors that drive the movements of interest rates of bonds of different maturities in a continuous-time no-arbitrage term structure model for Chile. The dynamics of yields in the model are explained by two latent factors, namely the instantaneous short rate and its time-varying central tendency. The model estimates suggest that the short end of the yield curve is mainly driven by changes in first latent factor, while long-term interest rates are mainly explained by the second latent factor. Consequently, when examining movements in the term structure, one should think of at least two forces that hit the economy: temporary shocks that change short-term and medium-term interest rates by much larger amounts than long-term interest rates, causing changes in the slope of the yield curve; and long-lived innovations which have persistent effects on the level of the yield curve.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Estudios de Economía ; ISSN: 0718-5286 ; Volume: 33 ; Year: 2006 ; Issue: 2 ; Pages: 155-184 ; Santiago de Chile: Universidad de Chile, Departamento de Economía

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Panel Data Models; Spatio-temporal Models ; Interest Rates: Determination, Term Structure, and Effects ; Financial Markets and the Macroeconomy ; Asset Pricing; Trading Volume; Bond Interest Rates
• Subject: affine term structure model ; yield curve ; Kalman filter

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ochoa, J. Marcelo
• Event: Veröffentlichung
• (who): Universidad de Chile, Departamento de Economía
• (where): Santiago de Chile
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/66713
• Last update: 10.03.2025, 11:43 AM CET