Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/83742
Authors: 
Cortés Espada, Josué Fernando
Ramos-Francia, Manuel
Year of Publication: 
2008
Series/Report no.: 
Working Papers, Banco de México 2008-10
Abstract: 
This paper investigates how different macroeconomic shocks affect the term-structure of interest rates in Mexico. In particular, we develop a model that combines a no-arbitrage specification of the term structure with a macroeconomic model of a small open economy. We find that shocks that are perceived to have a persistent effect on inflation affect the level of the yield curve. The effect on medium and long-term yields results from the increase in expected future short rates and in risk premia. With respect to demand shocks, our results show that a positive shock leads to an upward flattening shift in the yield curve. The flattening of the curve is explained by both the monetary policy response and the time-varying term premia.
Subjects: 
Term-Structure
No-Arbitrage
Macroeconomic Shocks
JEL: 
C13
E43
G12
Document Type: 
Working Paper
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