Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/83732
Authors: 
Cortés Espada, Josué Fernando
Ramos-Francia, Manuel
Torres García, Alberto
Year of Publication: 
2008
Series/Report no.: 
Working Papers, Banco de México 2008-07
Abstract: 
We study the dynamics of the term-structure of interest rates in Mexico. Specifically, we investigate time variation in bond risk premia and the common factors that have influenced the behavior of the yield curve. We find that term-premia in government bonds appear to be time-varying. We then estimate a principal components model. We find that over 95% of the total variation in the yield curve can be explained by two factors. The first factor captures movements in the level of the yield curve, while the second one captures movements in the slope. Moreover, we find that the level factor is positively correlated with measures of long-term inflation expectations and that the slope factor is negatively correlated with the overnight interest rate.
Subjects: 
Term-Structure
Time-Varying Risk Premia
Principal Components
JEL: 
C13
E43
G12
Document Type: 
Working Paper
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