2019 RDRC Meeting: Interest Rate Trends in a Global Context: Expanding the Evidence Base for Forecasting
Real interest rates have been declining both in the United States and across the developed world. This project undertakes a quantitative assessment of both global and domestic factors in the determination of U.S. interest rates and evaluates the relevance of those factors for forecasting. Preliminary findings suggest that the nature of the co-movement between the U.S. and foreign yield curves might have changed after the 2008 financial crisis. Our estimates of a dynamic term structure model show that global factors tend to explain the long-term dynamics of the yield curves and that they have relatively more impact on the long-term interest rates. By contrast, domestic factors are more relevant for short-term movements in yield curves as well as short-term interest rates.
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