Aaron Mehrotra (BIS): Interest rate spillovers from the United States: expectations, term premia and uncertainty

Aaron Mehrotra (BIS): Interest rate spillovers from the United States: expectations, term premia and uncertainty

Abstract

We analyse how movements in the components of sovereign bond yields in the United States affect long-term rates in 10 advanced and 21 emerging economies. In particular, we investigate the role of financial market, policy and geopolitical uncertainty for interest rate spillovers. The paper documents significant global spillovers from both the expectations and term premia components of long-term rates in the United States. Rising uncertainty generally tends to amplify spillovers from the United States to long-term yields abroad. However, the spillovers depend on the type of uncertainty and whether the affected country is an advanced or emerging economy. Finally, spillovers from US term premia are amplified when an emerging economy displays greater vulnerabilities.

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