A factor model of term structure slopes in eurocurrency markets
- Emilio Domínguez
- Alfonso Novales
ISSN: 2341-2356
Any de publicació: 2002
Número: 24
Pàgines: 1-16
Tipus: Document de treball
Altres publicacions en: Documentos de Trabajo (ICAE)
Resum
This paper departs from previous research in dealing with dimensionality reduction in the space of international term structure slopes. Recent empirical work has documented the existence of information in the slope of the term structure which is relevant to forecast future changes in economic activity, and it is additional to information in past economic activity, inflation, or in any leading indicator index [see Estrella and Hardouvelis (1991), Stock and Watson (1988), Hardouvelis (1994) and Plosser and Rouwenhorst (1994), among others]. This implies that a good forecasting model of term structure slopes could be helpful to anticipate changes in economic activity with an even longer anticipation.